Should Investors Fear Recessions?

Spring 2021, by the CIO office (NBC)

MYTH

Investors should be fearful of recessions as they entail heavy financial losses.

REALITY

It is true that the most turbulent periods for markets are generally concomitant with recessions. As such, those with eyes riveted on daily stock exchange prices are very likely to experience fear in times of economic downturn. 

However, if we step back from market fluctuations and look, rather, at the historical performance of a basic balanced portfolio (60% stocks, 40% bonds) during the last six recessions, we see that the average return was actually zero. Not something to celebrate, but far from the financial catastrophe many seem to believe - especially when we consider returns in the previous and following years. What's more, let's not forget that recessions are relatively rare events, covering only 15% of the last 50 years. 

Therefore, it is not the recession that investors should fear, but fear itself... or rather the risk of materializing heavy losses, when in the grip of emotion, at an untimely moment. 

(data via Refinitiv)

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