Markets

5 Lessons About Volatility to Learn From the History of Markets

Published

9 months ago

February 12, 2019

In 2018, the re-emergence of volatility took many market participants by surprise.

After all, aside from a few smaller, intermittent spikes over the course of the current bull market, volatility has largely been in a long-term downtrend since the aftermath of the 2008 Financial Crisis.

Whether there is more volatility lurking ahead this year or whether the markets continue to calm, it’s worth looking at the last century of market history to put these recent bouts of volatility into context.

Learning From the History of Markets

Today’s infographic comes to us from New York Life Investments and it goes back in time to show us that the volatility experienced in 2018 was neither exceptional or unusual.

Here are five important lessons to learn from it all:

5 Lessons About Volatility to Learn From the History of Markets

With volatility back on the table again, investors are re-learning what it’s like to cope with a sometimes tumultuous market.

Higher volatility can be a source of uncertainty for even the most seasoned investors, but a look at historical data over the last century helps to ease these concerns.

5 Lessons About Volatility

Here are five lessons about volatility that we can learn from the history of markets:

Lesson #1: Volatility isn’t new
Volatility isn’t a new phenomenon – and it’s actually as old as the stock market itself. In fact, if you look at historical swings in the Dow Jones Industrial Average, you’ll see that many of the biggest ones were more than 80 years ago.

Lesson #2: Volatility is actually the status quo
In the last century, volatility has been ever-present in the markets, and between 1935 and 2018 the S&P 500 has seen:

4,563 total days with +/- 1% price movements
1,094 total days with +/- 2% price movements

That works out roughly to a 1% price swing every trading week – and a 2% price swing every month. Yet, over this lengthy time period, and after all of that volatility, the S&P 500 has grown by 25,290%.

Lesson #3: Any short-term volatility disappears with a long-term view
Daily price swings can feel like a roller coaster. But if you take a step back and look at the big picture, this volatility is just a blip on the radar.

For example, if you look at a chart of the S&P 500 from August 1990 to February of 1991, you’ll see that daily volatility was rampant. But zoom out to a 10-year chart, and these daily or weekly swings are barely noticeable.

Lesson #4: Volatility can be easily weathered with a resilient portfolio
Given that volatility has been around forever and that it’s extremely common, that makes it fairly unavoidable. Therefore, to weather periods of volatility, it is imperative to build a resilient portfolio by diversifying between different asset classes.

Certain assets are better at weathering periods of volatility than others. Here are some traits to look for:

(a) Low correlation with the market
These assets can zig when others zag, making them a valuable hedge (Examples: Gold, alternative assets, municipal bonds)

(b) Generates cash flow
When times are uncertain, the market puts extra value on assets that are generating real cash flow (Examples: Stocks that pay dividends, or bonds that pay interest)

(c) Defensive or non-cyclical
During uncertain times, there are still companies with stocks that will thrive. They are usually bigger companies with conservative balance sheets and durable competitive advantages. (Examples: Quality stocks in healthcare, consumer staples, telecoms, REITs, and utilities sectors)

Lesson #5: Volatility reminds us that there is no reward without risk

Investing in stocks comes with risks, but it also comes with the best returns over time:

Asset Type	Annualized real return, 1925-2014
U.S. Equities	6.7%
Government Bonds	2.6%
Cash	0.5%

If stocks offer the best long run gains – and volatility is an unavoidable aspect of investing in stocks – then we must learn to accept volatility for what it is.

Even better, we must learn to build resilient portfolios that can weather any storm, while minimizing these effects.

Related Topics:investing markets s&p 500 volatility

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Central Banks

$69 Trillion of World Debt in One Infographic

What share of government world debt does each country owe? See it all broken down in this stunning visualization.

Published

7 hours ago

November 14, 2019

Jeff Desjardins

$69 Trillion of World Debt in One Infographic

Two decades ago, total government debt was estimated to sit at $20 trillion.

Since then, according to the latest figures by the IMF, the number has ballooned to $69.3 trillion with a debt to GDP ratio of 82% — the highest totals in human history.

Which countries owe the most money, and how do these figures compare?

The Regional Breakdown

Let’s start by looking at the continental level, to get an idea of how world debt is divided from a geographical perspective:

Region	Debt to GDP	Gross Debt (Millions of USD)	% of Total World Debt
World	81.8%	$69,298	100.0%
Asia and Pacific	79.8%	$24,120	34.8%
North America	100.4%	$23,710	34.2%
Europe	74.2%	$16,225	23.4%
South America	75.0%	$2,699	3.9%
Africa	56.9%	$1,313	1.9%
Other	37.1%	$1,231	1.8%

In absolute terms, over 90% of global debt is concentrated in North America, Asia Pacific, and Europe — meanwhile, regions like Africa, South America, and other account for less than 10%.

This is not surprising, since advanced economies hold most of the world’s debt (about 75.4%), while emerging or developing economies hold the rest.

World Debt by Country

Now let’s look at individual countries, according to data released by the IMF in October 2019.

It’s worth mentioning that the following numbers are representative of 2018 data, and that for a tiny subset of countries (i.e. Syria) we used the latest available numbers as an estimate.

Rank	Country	Debt to GDP	Gross Debt ($B)	% of World Total
#1	🇺🇸 United States	104.3%	$21,465	31.0%
#2	🇯🇵 Japan	237.1%	$11,788	17.0%
#3	🇨🇳 China, People's Republic of	50.6%	$6,764	9.8%
#4	🇮🇹 Italy	132.2%	$2,744	4.0%
#5	🇫🇷 France	98.4%	$2,736	3.9%
#6	🇬🇧 United Kingdom	86.8%	$2,455	3.5%
#7	🇩🇪 Germany	61.7%	$2,438	3.5%
#8	🇮🇳 India	68.1%	$1,851	2.7%
#9	🇧🇷 Brazil	87.9%	$1,642	2.4%
#10	🇨🇦 Canada	89.9%	$1,540	2.2%
#11	🇪🇸 Spain	97.1%	$1,386	2.0%
#12	🇲🇽 Mexico	53.6%	$655	0.9%
#13	🇰🇷 Korea, Republic of	37.9%	$652	0.9%
#14	🇦🇺 Australia	41.4%	$588	0.8%
#15	🇧🇪 Belgium	102.0%	$543	0.8%
#16	Netherlands	52.4%	$479	0.7%
#17	Argentina	86.1%	$447	0.6%
#18	Singapore	113.6%	$414	0.6%
#19	Greece	184.9%	$404	0.6%
#20	Austria	73.8%	$337	0.5%
#21	Indonesia	30.1%	$308	0.4%
#22	Portugal	120.1%	$289	0.4%
#23	Poland	48.9%	$286	0.4%
#24	Switzerland	40.5%	$286	0.4%
#25	Ireland	63.7%	$244	0.4%
#26	Russian Federation	14.6%	$242	0.3%
#27	Turkey	30.2%	$233	0.3%
#28	Egypt	92.7%	$231	0.3%
#29	Pakistan	71.7%	$226	0.3%
#30	Israel	60.8%	$225	0.3%
#31	Sweden	38.5%	$214	0.3%
#32	Thailand	42.1%	$213	0.3%
#33	South Africa	56.7%	$209	0.3%
#34	Taiwan Province of China	35.1%	$207	0.3%
#35	Malaysia	55.6%	$199	0.3%
#36	Venezuela	182.4%	$180	0.3%
#37	Norway	40.0%	$174	0.3%
#38	Colombia	52.2%	$173	0.2%
#39	Finland	59.3%	$163	0.2%
#40	Saudi Arabia	19.0%	$149	0.2%
#41	Iran	32.2%	$144	0.2%
#42	Vietnam	55.6%	$134	0.2%
#43	Philippines	38.9%	$129	0.2%
#44	Denmark	34.3%	$121	0.2%
#45	Hungary	70.8%	$114	0.2%
#46	Iraq	49.3%	$111	0.2%
#47	Nigeria	27.3%	$109	0.2%
#48	Bangladesh	34.0%	$98.1	0.14%
#49	Angola	89.0%	$94.3	0.14%
#50	Qatar	48.6%	$93.0	0.13%
#51	Romania	36.7%	$87.9	0.13%
#52	Lebanon	151.0%	$85.1	0.12%
#53	Czech Republic	32.6%	$79.9	0.12%
#54	United Arab Emirates	19.1%	$79.1	0.11%
#55	Ukraine	60.2%	$78.8	0.11%
#56	Morocco	65.0%	$77.0	0.11%
#57	Chile	25.6%	$76.3	0.11%
#58	Sri Lanka	83.3%	$74.1	0.11%
#59	Sudan	212.1%	$72.7	0.10%
#60	Algeria	38.3%	$66.5	0.10%
#61	New Zealand	29.8%	$60.5	0.09%
#62	Peru	26.1%	$58.8	0.08%
#63	Puerto Rico	55.5%	$56.1	0.08%
#64	Kenya	60.1%	$52.8	0.08%
#65	Slovak Republic	48.9%	$52.1	0.08%
#66	Ecuador	45.8%	$49.6	0.07%
#67	Ethiopia	61.0%	$49.0	0.07%
#68	Croatia	74.6%	$45.4	0.07%
#69	Dominican Republic	50.5%	$43.2	0.06%
#70	Oman	53.4%	$42.3	0.06%
#71	Jordan	94.4%	$39.9	0.06%
#72	Ghana	59.3%	$38.9	0.06%
#73	Slovenia	70.4%	$38.1	0.05%
#74	Uruguay	63.5%	$37.9	0.05%
#75	Kazakhstan	21.0%	$36.3	0.05%
#76	Bahrain	94.7%	$35.7	0.05%
#77	Costa Rica	53.5%	$32.3	0.05%
#78	Tunisia	77.0%	$30.7	0.04%
#79	Belarus	47.8%	$28.5	0.04%
#80	Serbia	54.5%	$27.5	0.04%
#81	Myanmar	38.2%	$26.2	0.04%
#82	Panama	39.5%	$25.7	0.04%
#83	Cyprus	102.5%	$25.1	0.04%
#84	Côte d'Ivoire	53.2%	$22.9	0.03%
#85	Bolivia	53.8%	$21.8	0.03%
#86	Tanzania	37.3%	$21.2	0.03%
#87	Zambia	78.1%	$20.9	0.03%
#88	Kuwait	14.7%	$20.8	0.03%
#89	Guatemala	24.7%	$19.4	0.03%
#90	Lithuania	34.2%	$18.2	0.03%
#91	Syria	30.0%	$18.0	0.03%
#92	Yemen	64.8%	$17.9	0.03%
#93	El Salvador	67.1%	$17.5	0.03%
#94	Cameroon	39.1%	$15.1	0.02%
#95	Luxembourg	21.4%	$14.9	0.02%
#96	Jamaica	94.4%	$14.6	0.02%
#97	Senegal	61.6%	$14.5	0.02%
#98	Mozambique	99.8%	$14.4	0.02%
#99	Bulgaria	20.4%	$13.3	0.02%
#100	Latvia	35.9%	$12.5	0.02%
#101	Turkmenistan	29.1%	$11.9	0.02%
#102	Uganda	41.4%	$11.6	0.02%
#103	Albania	69.9%	$10.5	0.02%
#104	Uzbekistan	20.6%	$10.4	0.02%
#105	Lao P.D.R.	57.2%	$10.4	0.01%
#106	Gabon	60.7%	$10.2	0.01%
#107	Congo, Republic of	87.8%	$10.2	0.01%
#108	Trinidad and Tobago	45.1%	$10.2	0.01%
#109	Iceland	37.6%	$9.8	0.01%
#110	Honduras	40.2%	$9.6	0.01%
#111	Mauritius	66.2%	$9.4	0.01%
#112	Paraguay	21.5%	$9.0	0.01%
#113	Azerbaijan	18.8%	$8.8	0.01%
#114	Nepal	30.2%	$8.8	0.01%
#115	Papua New Guinea	35.5%	$8.2	0.01%
#116	Bahamas, The	63.3%	$7.9	0.01%
#117	Zimbabwe	37.1%	$7.8	0.01%
#118	Georgia	44.9%	$7.3	0.01%
#119	Congo, Dem. Rep. of the	15.3%	$7.2	0.01%
#120	Cambodia	28.6%	$7.0	0.01%
#121	Bosnia and Herzegovina	34.3%	$6.9	0.01%
#122	Namibia	45.8%	$6.6	0.01%
#123	Malta	45.2%	$6.6	0.01%
#124	Mali	37.3%	$6.4	0.01%
#125	Barbados	125.7%	$6.4	0.01%
#126	Armenia	51.3%	$6.4	0.01%
#127	Burkina Faso	42.9%	$6.1	0.01%
#128	Equatorial Guinea	43.3%	$5.9	0.01%
#129	Benin	41.0%	$5.9	0.01%
#130	Madagascar	45.7%	$5.5	0.01%
#131	Chad	48.3%	$5.3	0.01%
#132	North Macedonia	40.5%	$5.1	0.01%
#133	Niger	53.8%	$5.0	0.01%
#134	Nicaragua	37.2%	$4.9	0.01%
#135	Guinea	38.2%	$4.6	0.01%
#136	Kyrgyz Republic	56.0%	$4.5	0.01%
#137	Mauritania	82.9%	$4.3	0.01%
#138	Malawi	62.9%	$4.3	0.01%
#139	Togo	76.2%	$4.1	0.01%
#140	Montenegro	72.6%	$4.0	0.01%
#141	Rwanda	40.7%	$3.9	0.01%
#142	Maldives	68.0%	$3.6	0.01%
#143	Tajikistan	47.9%	$3.6	0.01%
#144	Eritrea	174.3%	$3.5	0.01%
#145	Moldova	29.7%	$3.4	0.00%
#146	Haiti	33.3%	$3.2	0.00%
#147	Bhutan	102.4%	$2.6	0.00%
#148	Sierra Leone	63.0%	$2.6	0.00%
#149	Estonia	8.3%	$2.6	0.00%
#150	Fiji	46.2%	$2.6	0.00%
#151	Suriname	72.8%	$2.5	0.00%
#152	Cabo Verde	124.5%	$2.5	0.00%
#153	Aruba	84.5%	$2.4	0.00%
#154	Botswana	12.1%	$2.3	0.00%
#155	Guyana	52.9%	$2.1	0.00%
#156	Burundi	58.4%	$2.0	0.00%
#157	South Sudan, Republic of	42.2%	$1.9	0.00%
#158	Belize	95.2%	$1.8	0.00%
#159	Eswatini	35.2%	$1.7	0.00%
#160	Antigua and Barbuda	89.5%	$1.4	0.00%
#161	Gambia, The	86.6%	$1.4	0.00%
#162	Djibouti	48.0%	$1.4	0.00%
#163	Afghanistan	6.9%	$1.4	0.00%
#164	Kosovo	17.0%	$1.4	0.00%
#165	Liberia	39.9%	$1.3	0.00%
#166	San Marino	77.9%	$1.3	0.00%
#167	Saint Lucia	64.3%	$1.2	0.00%
#168	Lesotho	44.5%	$1.2	0.00%
#169	Central African Republic	49.9%	$1.1	0.00%
#170	Guinea-Bissau	64.3%	$0.9	0.00%
#171	Seychelles	56.9%	$0.9	0.00%
#172	Grenada	63.5%	$0.8	0.00%
#173	Saint Vincent and the Grenadines	74.5%	$0.6	0.00%
#174	Saint Kitts and Nevis	60.5%	$0.6	0.00%
#175	Vanuatu	51.4%	$0.5	0.00%
#176	Samoa	50.3%	$0.4	0.00%
#177	Dominica	74.1%	$0.4	0.00%
#178	Hong Kong SAR	0.1%	$0.4	0.00%
#179	Brunei Darussalam	2.6%	$0.4	0.00%
#180	São Tomé and Príncipe	74.5%	$0.3	0.00%
#181	Comoros	21.0%	$0.2	0.00%
#182	Timor-Leste	6.1%	$0.2	0.00%
#183	Solomon Islands	9.4%	$0.1	0.00%
#184	Micronesia, Fed. States of	20.3%	$0.1	0.00%
#185	Nauru	58.3%	$0.1	0.00%
#186	Marshall Islands	25.2%	$0.1	0.00%
#187	Kiribati	20.6%	$0.0	0.00%
#188	Tuvalu	28.1%	$0.0	0.00%

In absolute terms, the most indebted nation is the United States, which has a gross debt of $21.5 trillion according to the IMF as of 2018.

If you’re looking for a more precise figure for 2019, the U.S. government’s “Debt to the Penny” dataset puts the amount owing to exactly $23,015,089,744,090.63 as of November 12, 2019.

Of course, the U.S. is also the world’s largest economy in nominal terms, putting the debt to GDP ratio at 104.3%

Other stand outs from the list above include Japan, which has the highest debt to GDP ratio (237.1%), and China , which has increased government debt by almost $2 trillion in just the last two years. Meanwhile, the European economies of Italy and Belgium check the box as other large debtors with ratios topping 100% debt to GDP.

Green

Sustainable Investing: Debunking 5 Common Myths

Do sustainable strategies underperform conventional ones? This infographic shines a light on the realities of sustainable investing and the ESG framework.

Published

1 day ago

November 13, 2019

Jenna Ross

Sustainable Investing: Debunking 5 Common Myths

It began as a niche desire. Originally, sustainable investing was confined to a subset of investors who wanted their investments to match their values. In recent years, the strategy has grown dramatically: sustainable assets totaled $12 trillion in 2018.

This represents a 38% increase over 2016, with many investors now considering environmental, social, and governance (ESG) factors alongside traditional financial analysis.

Despite the strategy’s growth, lingering misconceptions remain. In today’s infographic from New York Life Investments, we address the five key myths of sustainable investing and shine a light on the realities.

1. Performance

Myth	Reality
Sustainable strategies underperform conventional strategies	Sustainable strategies historically match or outperform conventional strategies

In 2015, academics analyzed more than 2,000 studies—and found that in roughly 90% of the studies, companies with strong ESG profiles had equal or better financial performance than their non-ESG counterparts.

A recent ranking of the 100 most sustainable corporations found similar results. Between February 2005 and August 2018, the Global 100 Index made a net investment return of 127.35%, compared to 118.27% for the MSCI All Country World Index (ACWI).

The Global 100 companies show that doing what is good for the world can also be good for financial performance.

—Toby Heaps, CEO of Corporate Knights

2. Approach

Myth	Reality
Sustainable investing only involves screening out “sin” stocks	Positive approaches that integrate sustainability factors are gaining traction

In modern investing, exclusionary or “screens-based” approaches do play a large role—and tend to avoid stocks or bonds of companies in the following “sin” categories:

Alcohol
Tobacco
Firearms
Casinos

However, investment managers are increasingly taking an inclusive approach to sustainability, integrating ESG factors throughout the investment process. ESG integration strategies now total $17.5 trillion in global assets, a 69% increase over the past two years.

3. Longevity

Myth	Reality
Sustainable investing is a passing fad	Sustainable investing has been around for decades and continues to grow

Over the past decade, sustainable strategies have shown both strong AUM growth and positive asset flows. ESG funds attracted record net flows of nearly $5.5 billion in 2018 despite unfavorable market conditions, and continue to demonstrate strong growth in 2019.

Not only that, the number of sustainable offerings has increased as well. In 2018, Morningstar recognized 351 sustainable funds—a 50% increase over the prior year.

4. Interest

Myth	Reality
Interest in sustainable investing is mostly confined to millennials and women	There is widespread interest in sustainable strategies, with institutional investors leading the way

Millennials are more likely to factor in sustainability concerns than previous generations. However, institutional investors have adopted sustainable investments more than any other group—accounting for nearly 75% of the managed assets that follow an ESG approach.

In addition, over half of surveyed consumers are “values-driven”, having taken one or more of the following actions with sustainability in mind:

Boycotted a brand
Sold shares of a company
Changed the types of products they used

Women and men are almost equally likely to be motivated by sustainable values, and half of “values-driven” consumers are open to ESG investing.

5. Asset Classes

Myth	Reality
Sustainable investing only works for equities	Sustainable strategies are offered across asset classes

This myth has a basis in history, but other asset classes are increasingly incorporating ESG analysis. For instance, 36% of today’s sustainable investments are in fixed income.

While the number of sustainable equity investments remained unchanged from 2017-2018, fixed-income and alternative assets showed remarkable growth over the same period.

Tapping into the Potential of Sustainable Investing

It’s clear that sustainable investing is not just a buzzword. Instead, this strategy is integral to many portfolios.

By staying informed, advisors and individual investors can take advantage of this growing strategy—and improve both their impact and return potential.