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AAM Viewpoints – 10 Years Later

September is now in the books and despite the odds the S&P 500 posted a positive return of 1.93% for the month and closed at a new all-time high. This is noteworthy because historically September is the worst month to own stocks (based on 75 years of data). It is also one of only two months (August is the other) that have averaged a negative return over the last 75 years. Which brings us to our point – we believe one of the best tools at an investor’s disposal to achieve success is time in the market, not timing the market. By timing the market we mean investing based on seasonality (Sell in May, September is the worst, Octoberphobia, etc.) or trying to predict market tops and bottoms. To help illustrate this point let’s step back to end of the last bull market for U.S. equities which ended in October 2007.

Almost 10 years ago on 10/9/2007 the S&P 500 put in a bull market top hitting 1565.15. Now, almost 10 years later, we sit just above 2500 on the S&P 500 with a new all-time high of 2519.36 recorded on 09/29/2017. During this period there has been a tremendous amount of volatility in the capital markets and a lot of historic and market moving events both seen and unforeseen. However, when viewed from 35,000 feet the last 10 years really seem like business as usual for investors as detailed by the total return table below.


Source: AAM | Past performance is not indicative of future results.

As you can see, all eight indices listed have posted positive returns over this period and three of the indices have more than doubled. Despite this, a quick Google search for such topics as Investing is Broken or Buy and Hold Doesn’t Work will turn up a plethora of articles whose themes can usually be synthesized down to this: for investors to succeed they need to be able to time the markets and avoid sell-offs and bear markets. Yet, as shown above, it is clear that despite including the worst bear market since The Great Depression (the S&P 500 lost 56.78% from 10/9/2007 through 03/9/2009) that these returns indicate that long-term investing is not in fact broken, and that buy-and-hold investing can still bear fruit.

Surely the returns since 10/9/2007 would have been better if we could have avoided all sell-offs. However, we don’t believe this is feasible, but do believe the strategy of buying and holding investments that correlate with indices like these have the potential to provide sufficient returns for investors to help meet their goals provided they have the right investment timeframe (we discussed this in detail last time). That being said, we do also feel investors can improve on the policy of buying and holding by also rebalancing their allocations from time to time based on current valuations and expected forward returns. So to summarize, we would favor an investment strategy of buy, hold and rebalance as market conditions warrant.

Similar to 10 years ago, the S&P 500 now sits at an all-time high and similar to then the next 10 years will include many obstacles but hopefully none as daunting as The Great Recession. These obstacles could include a spike up in interest rates in response to the unwinding of the Fed’s balance sheet, a slowdown in corporate earning’s growth and escalated tensions on the Korean Peninsula. These obstacles and more are all possible threats to this current historic bull market run. However, we believe our view of an absence of euphoria, reasonable valuations, strong corporate earnings and accelerating global growth have the potential to allow investors to continue to prosper in the short term despite heightened risks for a mild pullback in the short term. Regardless of the short term, we think that investors who have the proper long-term mindset and adhere to a buy, hold and rebalance strategy have the potential to be rewarded 10 years down the road.

CRN: 2017-1002-6175R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.

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Effective, June 10, 2016, please note that Gene Peroni left Advisors Asset Management (AAM) to become President of Peroni Portfolio Advisors, Inc. Peroni Portfolio Advisors, Inc. ("PPA") is an investment advisor independent of AAM.