Pray for a bad year (?)

Naturally, we are not serious about this. But certainly Market Return Portfolio™ (MRP) investors have little to fear from bad years if they remain disciplined and steadfast in their strategy. By taking a close look at results of the MRP™ Equity model over a 32-year timeframe, we see that on three occasions when a "bad year" or two occurred, the results in the following years were phenomenal. In fact, the average return was 43.3 percent in the three post-bad market years of 1975, 1991 and 2003.

The success of the upturn also continued for several years following each of these bad markets. After a combined drop of 42.8 percent in 1973-74, the next 15 years saw growth of 364.9 percent with no negative years and an average increase of 24.3 percent per year. After a drop of 12.59 percent in 1990, the win streak picked up again with nine straight years of positive numbers, growing a combined 155.9 percent or 17.3 percent per year on average.

The most recent bad market period, 2000-02, which saw a total drop of 8.25 percent, was followed by an upturn of 68.7 percent in 2003-04. This historical data gives us confidence that a super-diversified MRP™ strategy buffers the ill effects of bad years and allows us to prosper in the inevitable and frequent good market periods. MRP™ participants should simply not fear a bad year in the stock markets. So now should we go so far as to pray for a bad year? Of course not. But perhaps when we see it happen, we can say a prayer of thanksgiving that we live in a free market society that can ultimately allow us to be successful long-term investors.

Composition of the MRP™ equity model is available upon request or is contained in Appendix A of our book, Wealth Without Worry.

 

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