A little perspective on equities

Russell 3000 Performance from October 1, 2007 - March 28, 2011

There is no shortage of news items for investors to focus on – disasters in Japan, political tensions in the Middle East and North Africa, etc. – but it’ s worth noting how far the markets have come in the last two years and where we are year-to-date in regards to U.S. equities.

It was just over two years ago that markets reached the low point on March 9th, 2009 (I have problems remembering my anniversary date, but March 9th is a date that I will likely never forget). Many investors forget – or don’t even realize – how far equity markets have come since the March 2009 lows.

Market volatility has been and will always be part of investing. The events of the last couple of weeks are painful reminders of the dramatic form market volatility can take. Equity markets are resilient, forward looking pricing mechanisms. Much of the volatility today is centered around the uncertainty and unknowns of the long term impacts in regards to rebuilding Japan, nuclear ramifications of the failed reactors, oil prices related to events in Middle East, etc. These are the known unknowns to use the Donald Rumsfeld line.

But it’s worth a little perspective to see how far we’ve come and where we are as of today (based on the performance of the Russell 3000® Index):

  • Year-to-date through March 28, 2011, U.S. equities are up marginally (4.8%).
  • U.S. equities reached a three-year high on February 14th, 2011. Since then, markets are down 1.4%.
  • Since the low on March 9th, 2009, U.S. equities are up 109% in cumulative terms and 43% annualized.
  • Since the high of U.S. Equities on October 9, 2007, U.S. equities are down 7.3% in cumulative terms and down 2.2% annualized.

A lot of numbers thrown around here, but you see that equities are making modest gains this year even with today’s unknowns. Also, we’ve come a long, long way since March 2009, but still have a bit to go to match the October 2007 highs.

Granted, investors with diversified portfolios have exposure to non U.S. equities which have fared marginally worse this year than U.S. equities, but the trends are similar (Russell Global Index is up 3.5% for the year as of March 25, 2011). Volatility has been high in recent weeks, but markets are positively trending since 2007.

Being flat, or marginally positive doesn’t look so bad when you consider where we were in 2009. Keep your clients armed with facts so that emotion doesn’t drive their investment decisions.

RFS 11959-e

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