Investors Beware: You Can’t Get Outperformance Without Underperformance

Nobody minds market volatility when it’s in the upward direction. But this week, we got plenty of the type of volatility that we don’t like so much as investors, the kind that inspires headlines with words like “plunge” and that end with exclamation points.

It presents an opportunity, therefore, to remind ourselves of one of the central tenets of the art and science of investing:

You can’t get outperformance without underperformance.

Indeed, the only reason we have a right to expect a higher rate of return on any given investment is that we’re willing to endure greater risk, and, in all likelihood, higher volatility. But just how much volatility?

Let’s look at some of the scariest market moments of the past 50 years, specifically how far the market—in this case, the S&P 500—dropped over a handful of notable time periods:

Biggest Market Drawdowns of the Last 50 Years
Biggest Market Drawdowns of the Last 50 YearsTIM MAURER