Stocks, Bonds, and a Balanced Portfolio Over Twenty Years

Chart of the Week for Sept 19, 2008 - Sept 25, 2008

Returns on stocks, bonds, and other assets can go up or down unpredictably. This unpredictability is a fundamental risk of investing. Managing risk in volatile markets can be especially challenging. For many investors, over the long-term, investing in a well-diversified portfolio may allow an investor to better manage risk and to seek their return objectives.

The chart above illustrates the hypothetical growth of $10,000 invested over a twenty-year period from September 12, 1989 to September 15, 2008. A portfolio invested 100% in stocks, as represented by the S&P 500 Index, would have fallen roughly 18% this year. However, the portfolio would be up 414% from its initial investment of $10,000. A portfolio invested 100% in bonds, as represented by the Lehman Brothers Aggregate Bond Index, would have gained 3% this year and would have grown 281% since inception.

A balanced portfolio consisting of a 60% allocation to stocks and a 40% allocation to bonds would have dropped 9% this year and would have grown 385% from the initial investment of $10,000. The argument for the balanced portfolio is in its ability to participate in over 90% of the returns garnered by the stock portfolio, but with smaller peaks and valleys of returns than the stock portfolio.

Results can vary depending on the time period selected. The twenty-year period was selected to provide a long-term perspective. Over this twenty-year period, and despite the recent pullback in the market, the cumulative return ranges from +281% (100% bonds) to +414% (100% stocks). Investing over the long-term requires patience and the knowledge that ups and downs in the market will happen. A balanced strategy geared toward your investment goals may allow you to better manage the risks of investing.

This illustration was compiled by information from outside sources. These companies are not affiliated with ICMA-RC. This information is being provided for educational purposes and is not intended to be construed as or relied upon as investment advice. ICMA-RC does not offer specific tax or legal advice. Individuals are advised to consider any new investment strategies carefully prior to implementing.

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The performance data quoted represents past performance. Past performance is no guarantee of future results. Investment returns and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data illustrated. For performance data current to the most recent month end, contact ICMA-RC Services, LLC by calling 800-669-7400 or by writing to 777 North Capitol Street, NE, Washington, DC 20002-4240. Para asistencia en Español llame al 800-669-8216. Performance data current to the most recent quarter end is available by visiting www.icmarc.org.