Building Client Confidence through Balancing and Blending

 In Market and Investment Insights

In order to grow wealth over the long run, history has taught us the importance of keeping clients invested throughout all market cycles. As we continue to march along this historical run of U.S. market returns, simply staying invested has become a daunting prospect for some. You can read more in our Portfolio Construction Services (PCS) team’s Portfolio Diagnostics Report: Uncertainty is not Unusual.

While we believe that a suitable long-term investment process is a proven ballast for any historical storm, this isn’t so straightforward for clients who feel that they are on the precipice of the worst of storms. It is worth noting, however, that when looking at the S&P 500® Index since 1976, simply staying invested for at least five years has kept portfolios afloat over 90% of the time:

Percent of Rolling Periods with Negative Returns, 1976-2017


However, there are some investors so pessimistic that 90% odds aren’t good enough. In our portfolio construction consultations, for such hesitant clients, we see opportunity in blending and balancing client asset allocations. This helps give these clients a better chance of staying exposed to the potential for market growth, while substantially reducing the tail risk of losing money. Indeed, staying invested in a portfolio represented by a 60% S&P 500/40% Bloomberg Barclays U.S. Aggregate Bond Index blend for at least five years has resulted in staying afloat over 99% of the time:

Percent of Rolling Periods with Negative Returns, 1976-2017

Source: Janus Henderson Analytics, Morningstar*60/40 Blend is 60% S&P 500® Index and 40% Bloomberg Barclays U.S. Aggregate Bond Index

While a 60/40 allocation certainly helps an investor to have a significantly higher chance of staying afloat after five years, it also helps if that client’s experience along the way is steady. To mimic the reality of an advisor facing quarterly client portfolio reviews, our Portfolio Construction Services team also looked at the odds of having to explain uncomfortably large quarterly statement losses for an investment represented by the S&P 500® Index versus a 60/40 blend. The S&P 500® Index client experienced these uncomfortable losses roughly twice as often as the 60/40 client:

Percent of Three Month Rolling Periods Losing More than 5%, 1976-2017


Among the uncertainty across global markets, timing risk is one uncertainty that advisors can help control. When working with reticent clients, a balanced strategy that blends stocks and bonds might allow advisors to help their clients stay their strategic course in a portfolio that is tailored to their individual risk and suitability requirements.

Learn more about resources to help optimize your portfolios and meet the investment needs of your clients with our Portfolio Construction Services program.

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Past performance is no guarantee of future results.

No investment strategy can ensure a profit or eliminate the risk of loss.

Index performance does not reflect the expenses of managing a portfolio as an index is unmanaged and not available for direct investment.

S&P 500® Index reflects U.S. large-cap equity performance and represents broad U.S. equity market performance.

Bloomberg Barclays Global Aggregate Bond Index is a broad-based measure of the global investment grade fixed-rate debt markets.

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