Volatility in perspective
Global market swings and heightened uncertainty can be unsettling. Still, there are ways to help investors achieve their long-term investment objectives.
These principles can help investors stay calm and rational in a volatile environment.
In challenging times, it is always useful to keep a few things in perspective.
First, volatility is normal, and market declines are part and parcel of investing.
The urge to exit can be overwhelming when markets are falling, but doing so may mean selling at the most inopportune time and missing potential market rebounds. This can be costly for portfolios in the long run.
While periodic pull-backs are not uncommon, 26 of the last 36 years have ended with positive returns for the MSCI All Country World Index.
This underscores the importance of patience and perseverance to ride out choppy markets. Investors should not let short-term volatility derail their long-term investment plans and stay focused on their end goal.
Volatility is normal. As a general macro trend, annual returns of the MSCI All Country World Index were positive in 26 of the last 36 years despite average intra-year drops of 15.3%.
MSCI All Country World Index annual price return and intra-year declines (1988 – 2023)
Source: Bloomberg, J.P. Morgan Asset Management. Data as of 31.12.2023. Max intra-year price declines refer to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Past performance is not a reliable indicator of current and future results. Average annual return between 1988 to 2023 was 7.2%.
Second, investing is about time in the market, not timing the market.
For one, the range of return outcomes narrows considerably and skews positive over longer time horizons.
It is also worth noting that over the last 73 years ending December 2023, a 60/40 portfolio of US equities and fixed income has not posted negative returns over a rolling 5-year, 10-year or 20-year investment horizon1.
While there is no guarantee of future returns, the data demonstrates the importance of staying invested and focusing on the long term.
The longer the holding period, the higher the chances of opportunities for positive returns as the range of potential outcomes narrows.
Range of equity, fixed income and 60/40 portfolio annualised total returns, 1950-2023
Source: Bloomberg, FactSet, Federal Reserve, Robert Shiller, Strategas/Ibbotson, J.P. Morgan Asset Management. Data as of 31.12.2023. Returns shown are based on calendar year returns from 1950 to 2023. Equity represented by the S&P 500 Shiller Composite. Fixed income represented by the Strategas/Ibbotson index for periods from 1950 to 2010 and Bloomberg Aggregate index thereafter.
Third, diversification can be useful to ease the journey through choppy markets.
Diversifying portfolios across a variety of negatively correlated and/or uncorrelated asset classes can help manage the risks during a market downturn.
As an illustration of the macro trend, a well-diversified portfolio2 has recorded average returns of around 4.4% annually over the last decade, comparing favourably with other individual asset classes.
Such a portfolio also experienced just two-thirds of the volatility of developed market equities and less than half of the volatility of emerging market equities.
As such, diversification can help mitigate volatility and harness opportunities across various asset classes.
A diversified portfolio has posted reasonable returns with meaningfully lower volatility versus equities over the last decade.
Annualised performance and annualised volatility (2014 June-2024 June)
Source: Bloomberg L.P., Dow Jones, FactSet, J.P. Morgan Economic Research, MSCI, J.P. Morgan Asset Management. Data as of 30.06.2024. The “Diversified” portfolio assumes the following weights: 20% in the MSCI World Index (DM Equities), 20% in the MSCI AC Asia Pacific ex-Japan (APAC ex-JP), 5% in the MSCI EM ex-Asia (EM ex-Asia), 10% in the J.P. Morgan EMBIG Index (EMD), 10% in the Bloomberg Aggregate (Global Bonds), 10% in the Bloomberg Global Corporate High Yield Index (Global Corporate High Yield), 15% in J.P. Morgan Asia Credit Index (Asian Bonds), 5% in Bloomberg US Aggregate Credit–Corporate Investment Grade Index (US IG) and 5% in Bloomberg US Treasury –Bills (1-3 months) (Cash). Diversified portfolio assumes annual rebalancing. All data represent total return in US dollar terms for the stated period. Past performance is not a reliable indicator of current and future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
Positioning for resilience with income solutions
Alongside diversification, income in the form of coupons from bonds and dividends from stocks can help create a cash flow buffer for portfolios.
Additionally, income investing can help capture opportunities that may tap the broader market upside. Cashflow from income-generating assets can be reinvested to help harness valuation opportunities that emerge in volatile and fast-moving markets.
Rigorous bottom-up security selection, diversification across and within asset classes, markets and sectors, and flexibility to adjust allocations are essential to building resilient income-focused portfolios.
From regional-focused funds to globally diversified fixed income and multi-asset funds, our active income solutions can help balance the search for opportunities with a focus on risk management amid elevated volatility.
This unconstrained, global fixed income fund seeks to deliver relatively attractive and consistent yield, with lower volatility than individual sectors.
^Past Performance is not indicative of current or future results. [Click here for the full performance data]
Make the most of a wide income opportunity set with a fund that can invest flexibly across 15 asset classes, 3000+ securities and 90+ markets.
*Past performance is not indicative of current or future results. [Click here for the full performance data.]
**The declaration and payment of dividends is at the discretion of the manager and is subject to the dividend policy referred in the Offering Documents. Please refer to the Offering Documents for details on the Fund’s investment strategy including risk factors and the dividend policy. Dividends are not guaranteed.
An all-weather fund that adopts a diversified multi-asset approach in the hunt for yield in Asia Pacific (APAC).
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Provided for information only based on market conditions as of date of publication, not to be construed as offer, research, investment recommendation or advice. The manager seeks to achieve the stated objectives. There can be no guarantee the objectives will be met. Indices do not include fees or operating expenses and are not available for actual investment.
Diversification does not guarantee investment return and does not eliminate the risk of loss.
1. Source: “How do investors navigate market volatility?” J.P. Morgan Asset Management, 13.05.2022.
2. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
3. Duration is a measure of the sensitivity of the price (the value of the principal) of a fixed income investment to a change in interest rates and is expressed as number of years.
4. High-yield credit refers to corporate bonds which are given ratings below investment grade and are deemed to have a higher risk of default. Yield is not guaranteed. Positive yield does not imply positive return.
JPMorgan Income Fund is the marketing name of the JPMorgan Funds - Income Fund.
JPMorgan Global Income Fund is the marketing name of the JPMorgan Investment Funds – Global Income Fund.
JPMorgan Asia Pacific Income Fund is the marketing name of the JPMorgan Funds - Asia Pacific Income Fund.
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