A balanced global investment strategy may help mitigate the longer-term impact of negative events on disciplined investors. The chart below 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 cumulative returns start from the first day of the month following each crisis.
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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 cumulative 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
7.5% S&P 500 Index 7.5% Fama/French US Large Cap Value Index 7.5% Fama/French US Small Cap Value Index 7.5% CRSP 6-10 Index 15% Fama/French International Value Index (7/81–12/10) and MSCI World ex USA Value (1/11–9/11) 15% International Small Cap Index 40% Merrill Lynch One-Year US Treasury Note Index
