Market Study

Risk Management examples

Why you don't have to be a perfect asset allocator to beat the buy-and-hold non strategy. Buy and hold advisors usually show how returns go down when you miss a few of the best days. They usually don't show the rest of the story. The table below shows that you don't have to be perfect when you miss 10 to 40 of both the best and worst days since the return still exceeds the buy and hold return of 9.55% per year.

Returns for the S&P500 (1/1/1980-12/31/02)*

	% per year
Buy-and-Hold	9.55
Missed 10 best days	7.03
Missed 20 best days	5.18
Missed 30 best days	3.57
Missed 40 best days	2.12
Missed 10 worst days	13.44
Missed 20 worst days	15.47
Missed 30 worst days	17.18
Missed 40 worst days	18.75
Missed 10 best & worst days	10.83
Missed 20 best & worst days	10.87
Missed 30 best & worst days	10.78
Missed 40 best & worst days	10.68

* Tandem Financial Services, Inc. Study

Current Market Conditions & How to React to Them - a power point presentation given to AAII members on 11/2006