FROM OUR INVESTMENT COMMITTEE | Charts Every Investor Should Know: Let Markets Work for You

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Sometimes a picture really can make things easier to understand. Many of the important ideas and concepts you need to know as a long-term investor don’t require lengthy explanations. This chart illustrates foundational principles of investing such as focusing on the long term, diversification, as well as not letting emotions compromise your portfolio.

  Hypothetical value of $100 invested at the beginning of 1972 and kept invested through December 31, 2017. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. Past performance is no guarantee of future results. Data source: Morningstar Direct and Dimensional’s Returns 2.0. U.S. Stocks: Fama/French Total U.S. Market Index Portfolio. U.S. Large Value Stocks: Fama/French U.S. Large Value Index (ex utilities). U.S. Small-Cap Stocks: CRSP Deciles 6-10 Index. International Stocks: MSCI EAFE IndexNet. U.S. Long-Term Gov’t Bonds: Long-Term Government Bonds. U.S. Treasury Bills (1-Month): One-Month U.S. Treasury Bills. U.S. Inflation (CPI): Consumer Price Index for All Urban Consumers (CPI-U). Indexes are unmanaged baskets of securities that investors cannot directly invest in. Index performance does not reflect the fees or expenses associated with the management of an actual portfolio.Risks associated with investing in stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. T Bills and government bonds are backed by the U. S. government and guaranteed as to the timely payment of principal and interest. T Bills and government bonds are subject to interest rate and inflation risk and their values will decline as interest rates rise.

Hypothetical value of $100 invested at the beginning of 1972 and kept invested through December 31, 2017. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. Total returns in U.S. dollars. Past performance is no guarantee of future results. Data source: Morningstar Direct and Dimensional’s Returns 2.0. U.S. Stocks: Fama/French Total U.S. Market Index Portfolio. U.S. Large Value Stocks: Fama/French U.S. Large Value Index (ex utilities). U.S. Small-Cap Stocks: CRSP Deciles 6-10 Index. International Stocks: MSCI EAFE IndexNet. U.S. Long-Term Gov’t Bonds: Long-Term Government Bonds. U.S. Treasury Bills (1-Month): One-Month U.S. Treasury Bills. U.S. Inflation (CPI): Consumer Price Index for All Urban Consumers (CPI-U). Indexes are unmanaged baskets of securities that investors cannot directly invest in. Index performance does not reflect the fees or expenses associated with the management of an actual portfolio.Risks associated with investing in stocks potentially include increased volatility (up and down movement in the value of your assets) and loss of principal. T Bills and government bonds are backed by the U. S. government and guaranteed as to the timely payment of principal and interest. T Bills and government bonds are subject to interest rate and inflation risk and their values will decline as interest rates rise.


What This Chart Means to You: Good things may come to those who wait — and to those who don’t let short-term news events scare them out of staying invested. Every generation of investors has had its reasons to worry and pull out of the market: from the Great Depression, World War II, and Vietnam of earlier generations to the more recent Black Monday, dot com bubble, and Great Recession. But if you had invested $100 in the U.S. stock market back in 1972, and left it alone all those years, by the end of 2017 that $100 would have grown to $11,086. Decade after decade, markets around the world have been significant generators of long-term wealth for patient, diversified investors.

And depending on your appetite for risk, patience may be rewarded by owning riskier investments like small companies over large, and value companies over growth companies. Academic research finds that small and value companies have outperformed over the long term. As the chart illustrates, that same $100 invested in 1972 in small company stocks would have returned $19,819 at the end of 2017, and invested in large value stocks would have returned $13,772.

This is why Modernist’s portfolios are built to include a diverse range of asset classes, with a tilt towards small and value companies!

You can’t get return without risk — that is the price of admission for being an investor. As an Investment Advisor we help our clients understand what risk is and determine how much risk is comfortable for them.