February 3


Worst Case Scenario

Family Update:

I’ve had several of you ask about my wife.  For those of you who don’t know, she was diagnosed with Stage 2 breast cancer last February.  She immediately had a double mastectomy, and has since gone through radiation and three additional surgeries.   But the news, at this point, is all good!  The cancer is gone, the treatments are over, and no more surgeries.  Praise God!  Her body has been through a lot, and she is slowly getting her strength back.  Thank you for all the kind words and well wishes.

Dave’s Financial Rant for the Week

New York University has some fantastic long-term historical financial data, which I am using this week.  You can see it here:  NYU Data.

As always, I want to delve into the world of data, statistics, history and probability (it may sound boring, but it’s not!  Read on).

I am constantly battling against the concept that investing is unpredictable and risky.   This week we are going to look at what would have happened, historically speaking, to someone with a portfolio of 50/50 stocks1/bonds2.

I am attempting to show you that your concept of volatility may be out of whack.  Most people I meet with believe that in any given year, a balanced and diversified portfolio of stocks and bonds might lose 50% or more.  Hmmmmm…..  Is that true?  Let’s take a look…..

Let’s look at the time period stretching from 1940 until 2016.  During that 76 year stretch, what was the worst single year result of a 50/50 stocks1/bonds2 portfolio?

The worst year?  1974.   The combination of a worldwide oil embargo, and the resignation of Richard Nixon made for a really bad year in the financial markets.

In 1974 you would have lost 12%.  The stock market was down 26% and the bond market was up 2%.  So if you had $100,000 in your portfolio, half of it would have lost $13,000 and the other half would have made $1,000.  During that year, your portfolio would have dropped from $100,000 to $88,000.  That was the WORST.

Here is every year the stock market has gone down since 1940- combined with what the bond market did that same year.

Year Stocks (S and P 500 Index) Bonds (10 Year T. Bond)
1940 -11% +5.4%
1941 -13% -2%
1946 -8.4% +3%
1953 -1.2% +4%
1957 -10.5% +6.8%
1962 -8.8% +5.7%
1969 -8.2% -5%
1973 -14.3% +3.6%
1974 -26% +2%
1977 -7% +1.3%
1981 -4.7% +8.2%
1990 -3% +6.2%
2000 -9% +16.6%
2001 -12% +5.5%
2002 -22% +15%
2008 -37% +20%

Of course, I can’t guarantee what will happen in the future.  But these patterns are hard to ignore.


  1. Losing 50% of the value of your diversified investment portfolio is not a realistic expectation.
  2. A “balanced” portfolio can often times be pictured as a “see-saw.” Stocks go down, bonds go up.
  3. Over this period, the stock market was down 16 out of 76 years. It was down by more than 15% only three times.
  4. A balanced a diversified portfolio of stocks and bonds is a remarkably powerful way to grow your money. You are not speculating.  You are investing.

Be Blessed,



1- as measured by the S & P 500

2- as measured by the 10-Year T Bond (NYU Data).  I am using this data instead of the Barclay’s Aggregate Bond Index because that bond index only goes back to 1974, while the T. Bond data goes back to 1926.

The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings.

The value of fixed-income securities may be affected by changing interest rates and changes in credit ratings of the securities.

 Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. Indexes are unmanaged portfolios and individuals cannot invest directly in an index.  Actual results will vary.

This communication is for informational purposes only and nothing herein should be construed as a solicitation, recommendation or an offer to buy or sell any securities or product, and does not constitute legal or tax advice. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel.

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