Three Years Since Market Lows – What Was Key Driver of Returns?

March 9, 2012 provides us with an opportunity for reflection back to exactly three years ago.  On March 9, 2009, the S&P 500 index had declined to a low of 677 as a result of the 2008-09 financial crises.  At that point in time, the financial system was extremely fragile and many were concerned that we were heading into a depression.   Upon hitting this low, the S&P 500 index had declined 57% from its peak of 1,565 which was reached on Oct. 9, 2007.  Now for the good news – since that low, the S&P 500 has recovered substantially and earned a total return of 112%.  Over the same time period the Barclays Aggregate Bond Index has achieved a total return of about 23% and the typical money market fund has returned about 0.2%.

During the heat of the crisis, many investors sold down their stock positions to “protect” what remained of their portfolio.  Unfortunately, what they perceived as protection limited their participation in the gains that have since occurred.  Human behavior and the characteristics of fear and greed lead many investors to be underweight stocks at the wrong time (and typically overweight stocks at an equally wrong time).  As Larry Summers puts it, “Most investors want to do today what they should have done yesterday!”

So the questions are:

  1. Did you participate in the recovery of the past three years or did you wait on the sidelines for a “safer time” to get back into stocks?
  2. Did you rebalance your investments and increase your exposure to stocks, taking advantage of much cheaper prices?

The answers to these questions are the key drivers of your portfolio return over the last three years.  For our clients, we are happy to show you how your investments have participated in the three year recovery.  For our readers who are not clients, we are happy to share with you the results of our investment management services in a one-on-one meeting.

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The information in this material is only as current as the date indicated, and may be superseded by subsequent market events or for other reasons. While all information prepared in this document is believed to be accurate, any statements of opinion constitute only current opinions of Payne Wealth Partners, Inc., which are subject to change and which Payne Wealth Partners, Inc. does not undertake to update. Accordingly, you should not put undue reliance on these statements. The information does not attempt to examine all the facts and circumstances that may be relevant to an individual’s financial needs. Payne Wealth Partners, Inc. is not soliciting any action based on these statements.

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Payne Wealth Partners, Inc.
Keystone Financial Consulting
601 N Cross Pointe Blvd
Evansville, IN 47715
Phone: 812-477-6221
Toll Free: 888-477-6221
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