The Nature of Investment Risk
“Investment success accrues not so much to the brilliant as to the disciplined.” – William Bernstein
The S&P 500 ended 2018 in a brutal fashion. In fact, it recorded its worst December performance since 1931. But as of the close of this February the S&P 500 is up 11%, closing at 2,784 year-to-date. Though certainly a welcome turn of events after December of 2018, we need to remind ourselves that one year ago, on February 26, 2018, the S&P 500 closed at 2,779, which means that over the past year the market has gone just about nowhere.
A basic idea of finance is that investors should get paid for the risk they take. Investors who lock their money up in U.S. treasuries should not expect to earn as much as investors who put that same money to work in U.S. equities, because U.S. equities have much greater risk. Generally, this idea does hold, especially over longer periods of time.