This disturbing S&P 500 stat actually makes the case for index investing
Diversification can help keep your blood pressure under control
Bloomberg’s Jonathan Ferro1 has been sharing this interesting quote from Morgan Stanley addressing the year-to-date performance of the S&P 500.
…88% of S&P 500 members have experienced at least a 10% drawdown. Meanwhile, on a closing price basis, the index has only corrected by 5%. That is a historical anomaly.
That comes from Michael Wilson, the investment bank’s chief U.S. equity strategist and one of Wall Street’s most closely-followed stock market forecasters.
The quote is jarring. It’s disturbing to hear that almost all of the individual stocks in the S&P 500 have seen double-digit selloffs from their highs this year. And it’s unsettling that it’s a historical anomaly for those selloffs to occur despite a more modest decline at the index level.
But if you’re among the investors with an estimated $5.4 trillion parked in funds passively tracking the S&P 500, you might consider Wilson’s observation a perfect example of why people invest in broadly diversified index funds.2
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