Are there any fans of The Desert Rose Band out there? In 1987 they had a great song called “One Step Forward” that featured the chorus, “one step forward and two steps back, nobody gets too far like that.” That doesn’t seem very profound, but the lesson there can be a great one when it comes to viewing your investment returns and how your assets are being managed. When people come into our office I like to bring up a hypothetical scenario featuring two portfolios and their returns over a two-year period.
Which portfolio would you rather have? Keep in mind the Year 1 return of Portfolio A combined with the Year 2 return of Portfolio B is not an option! If you use a dollar value, you can see what $1 would be worth after the two years in the table below:
Over time, if you are able to manage through the inevitable downturns of the market by lowering your downside risk, you could see better results over time. That is different from simply having an indexing or “buy and hold” philosophy for your portfolio. In the words sung by The Desert Rose Band just remember, “one step forward and two steps back, this kind of dance can never last!”
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