COVID-19 and the resulting global pandemic has tested our global community, economy and markets. Investors with a diversified portfolio may have faced the following emotions of “I lost money” as the market first fell, followed by “I didn’t make as much” as the market has recently recovered (but for how long?). Yet, over a 20-year period, a diversified portfolio has still provided a higher total return, while assuming much less risk than the S&P 500. In the end, diversification wins, even when it feels like losing.
Recovery Rates
Investing can be hard. Sequence of returns matter. A decline in markets and investment portfolios can require a startlingly high recovery rate to return to the initial value. Proper management of risk and diversification can help neutralize some of the impact from inevitable market declines and swings.