As many of you are probably aware, last week we experienced significant volatility in the global equity markets. While many speculate that it was due to the slowdown of economic growth in China, oil prices back to hitting new lows, and uncertainty over what the Fed will do at their next meeting, the reality is, we have not experienced much volatility in the equity markets in quite some time. Last week's move was the largest down market that we have experienced since 2011. While most investors would like the markets to move at a slow and steady incline, it is not realistic to expect that corrections will not occur from time to time.
None of us know at this point if this is a blip or if there is more downward pressure in front of us. We will only know this in hindsight. To provide some perspective on what has happened in recent history subsequent to major market corrections, please see the chart below.
This chart shows what has happened to the performance of a balanced investment portfolio 1,3, and 5 years after the markets responded to different global crisis over the last 30 years. In all situations a balanced investment portfolio would have experienced solid positive returns after a five year time horizon and all but one event had positive returns after a three year time horizon following a crisis (due to a second crisis occurring within the 3 year time period).
Jenifer Aronson is the Founder of Mosaic Fi.