For good reasons, long-term investors hear a lot about balance.

How investments are balanced accounts for 90% of the variability of their return compared to other portfolios, according to research pioneered by the late Nobel laureate Harold Markowitz.

“It is the reason why we obsess over the mix of stocks and bonds,” Adam Baley said in a presentation at the 2024 Investment Outlook Seminar. “You get this right, essentially you get 90% of everything right. Everything else just falls into place.”

The right balance, Adam explained, can provide investment returns with low enough risk that investors can gain the confidence and courage they need to stomach inevitable market downturns. Balance offers investors patience so they can stand their ground.

“Patience,” Adam said. “Not only is it a virtue, it’s a skill. And it happens to be a skill that the market rewards more than anything else.”

The optimum balance varies from investor to investor, but using a hypothetical mix of 60% stocks and 40% bonds, Adam shared data showing how patient investors with balanced portfolios have fared since 1950.

“In the last 74 years for the patient balanced investor, there has not been a single rolling five-, 10- or 20-year period where you would’ve lost money. Not one,” Adam said, using information from J.P. Morgan Asset Management (compiled in the chart above based on data from the S&P 500 Shiller Composite index and the Bloomberg Aggregate Bond Index).

“That’s the essence of why you hired us, isn’t it?” Adam said. “To make money when it’s easy to make money and don’t blow it when times get tough. Well, the only way that you can do that successfully and reliably is through balance.”

Adam reminded clients attending the annual Landaas seminar of the tough times investors withstood just since 2019.

“In five years, you have endured a pandemic, a recession, 9% inflation and a bear market,” Adam said. “You’ve gone through four significant economic events in succession.”

And yet, as Adam showed, a hypothetical 60/40 portfolio in the previous five years had grown more than 50%. Despite the significant events, the balance provided short-term safeguards through bonds and long-term growth through stocks.

Historically, Adam explained, the combination of stocks and bonds has helped investors endure the uncertainties that make investments volatile. That explains how patient investors survived the previous five years, Adam said, and how they can plan for uncertainties they have yet to face.

“That balance is the most powerful tool in your toolkit to navigate the markets ahead because the markets ahead are uncertain,” Adam said. “Balance remains the best antidote to uncertainty.”

Adam Baley is vice president and investment advisor at Landaas & Company, LLC.

To view Adam’s presentation, please click here.

(Money Talk Video edited by Jason Scuglik)

Click here to view the 2024 Investment Outlook Seminar.

Click here for the Investment Outlook Seminar Quiz

(based on the seminar material, featuring multiple-choice questions and answers).