The prevailing sentiment of the market continues to be uncertainty as we move toward year-end. Investors are concerned with the future path of interest rates, ongoing global unrest occurring in various parts of the world, and the risk of a future recession in the U.S.
Considering all these factors, it is very difficult to predict how the stock and bond markets will behave in the near-term. On the other hand, it is also important to reflect on how the markets have performed during other uncertain times. The following graph (from Dimensional Fund Advisors) shows how a dollar invested in the world markets may have grown throughout various global events.
Despite several events that have shocked the investing world, long-term investors would have been rewarded by staying invested. Over recent years, many other events have influenced the markets including Covid-19, Russia’s Invasion of Ukraine, and high inflation levels not seen since the 1980s, amongst others. When looking at the 5-year performance of diversified portfolios, annual returns are not far off long-term averages.
We must keep in mind that investing involves portfolio volatility, but over the long-term, we continue to expect returns in line with the amount of risk taken.