The Value of a Disciplined Long-Term Approach

Throughout this economic cycle, there have been countless events that had the potential to, and often did, send the U.S. equity markets lower. But even the effects of major developments like the downgrading of U.S. debt, Taper Tantrum, or the European Sovereign Debt Crisis — each of which had the potential to cause broader contagion — ultimately proved transitory.

The chart below illustrates the power of a long-term approach and sticking to a disciplined investment strategy.

S&P 500 Chart Blog 43-1

Source: TimBukOne

Coming out of the Global Financial Crisis, many investors remained overweight to cash-like instruments until the recovery had been underway for years. Tactical managers known as “third-party strategists” or “fund strategist portfolios” took in billions of dollars from advisors, promising the avoidance of big drawdowns. Many of these managers use different types of quantitative signals to determine when to rotate asset classes or enter/exit the market.

In hindsight, tactically trying to time the market proved a mistake as the S&P 500 Index returned nearly 300% (including dividends) over the 10+ year period from March 2009 through July 2019. Large cap stocks outperformed most other asset classes. All this despite the myriad events that threated to derail the market along the way.

Today, similar lessons can be learned regarding value or small cap stocks. Both asset classes have been out of favor, but both boast strong long-term returns. Staying disciplined in your exposure to either investment type may pay off when the pendulum inevitably swings back in the other direction.


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