Tuesday, March 15, 2011

The Market's Response to Crisis

By Arianna Capital

This slide shows performance of a balanced investment strategy following a few historical crises. Each crisis is labeled with the month and year that it occurred or peaked. The subsequent one-, three-, and five-year annualized returns start from the first day of the month following each crisis.

Although a global investment strategy would have suffered losses immediately following most events, the financial markets recovered over time, as indicated by the positive three- and five-year annualized returns. Negative events such as these may tempt investors to flee the financial markets. But diversification and a long-term perspective can help investors apply discipline to ride out the storm.

Composition of the Normal Balanced Strategy:

Index Percent
S&P 500 Index 12%
Fama/French US Large Cap Value Index 12%
Fama/French US Small Cap Index 6%
Fama/French US Small Cap Value Index 6%
Dow Jones Wilshire REIT Index 6%
Fama/French International Value Index 6%
International Small Cap Index 3%
International Small Cap Value Index 3%
MSCI Emerging Markets Index 1.8%
Fama/French Emerging Markets Value Index 1.8%
Fama/French Emerging Markets Small Cap Index 2.4%
Merrill Lynch One-Year US Treasury Note Index 10%
Citigroup World Government Bond Index 1-3 Years (hedged) 10%
Lehman Brothers Treasury Bond Index 1-5 Years 10%
Citigroup World Government Bond Index 1-5 Years (hedged) 10%

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