Portfolios Built for Moments Like This: Insights From Our CIO

At Mercer Advisors, we often say that our goal is to help our clients live their lives without worrying about money. That might seem hard to imagine in a moment when markets are falling sharply – like they have been recently.

But I’d like to take a minute to tell you why we think it’s going to be okay. Why our investment philosophy – with its focus on careful planning and broad diversification – prepares us for moments like this.

At Mercer Advisors, we don’t try to predict the future, and we don’t try to time the market. Instead, we construct portfolios based on evidence that suggests they will remain resilient during economic downturns, which are inevitable. In investing, as in life, we can’t predict when a storm will hit, so the best we can do is be prepared.

Where we stand

The S&P 500 Index was down at one point Monday, April 8, more than 20% from its February peak – the threshold that means we’ve officially entered a bear market.

At Mercer Advisors we have long recommended broadly diversified portfolios. In addition to U.S. stocks, we help build portfolios that include allocations to bonds and international stocks, both developed and emerging markets. We use the strategy of factor investing, which is a transparent, rules-based approach to capturing higher expected returns. When it’s in a client’s best interest, and when they are properly qualified for such investments, we also help build portfolios in private markets.

Let’s look across our key benchmarks on a year-to-date basis and take stock of where markets stand as of Monday’s close.

• Year-to-date, the S&P 500 is down 13.63%
• For those using factor investing, the MSCI ACWI Diversified Multiple-Factor Index, is down 7.9%
• European stocks, as measured by the Euro Stoxx 50, are down 4.47%
• Developed markets, outside the U.S. and Canada, are up 1.75%
• Emerging market stocks, as measured by the MSCI Emerging Markets Index, are up 1.76%
• Bonds, as measured by the Bloomberg U.S. Aggregate Total Return Bond Index, are up 3.69%

Where an individual portfolio sits is going to depend upon your personal allocations to each of those asset classes, but the takeaway is that right now a strategy with diversification is providing a lot of protection against the very sharp drop in U.S. equity markets.

Why your portfolio’s strength isn’t just luck

It might sound like just a lucky break that diversified portfolios are providing quite a cushion right now.

But it’s not luck. Moments like this are exactly why we build diversified portfolios in the first place.

Sources: Vanguard Investment Advisory Research Center, calculations through Dec. 31, 2024, using data from FactSet.

Notes: Stocks are represented by the S&P 90 Index from 1926 through March 3, 1957; the S&P 500 Index from March 4, 1957 through 1974; the Wilshire 5000 Index from 1975 through April 22, 2005; the MSCI U.S. Broad Market Index from April 23, 2005, through June 2, 2013; and the CRSP U.S. Total Market Index thereafter. Bonds are represented by the S&P High Grade Corporate Index from 1926 through 1968, the Citigroup High Grade Index from 1969 through 1972, the Lehman Brothers U.S. Long Credit AA Index from 1973 to 1975, the Bloomberg U.S. Aggregate Bond Index from 1976 through 2009, and the Bloomberg U.S. Aggregate Float Adjusted Bond Index thereafter. When determining which index to use and for what period, Vanguard selected the index that it deemed to fairly represent the characteristics of the references market, given the available choices.

Take a long view and consider the last 100 years of investing. Since 1926, a strategy 100% in U.S. stocks has had returns as high as 54% but drops as harrowing as 43%. It’s returned 10% over time (for anyone with white knuckles who never panicked and sold along the way). A strategy of 60% stocks and 40% bonds, however, has returned about 9%, without nearly as severe of plunges along the way.

The chart above powerfully illustrates just one dimension of diversification – splitting between U.S. stocks and bonds. It illustrates why diversification is important.

It doesn’t show, though, the benefits of international diversification – to both developed and emerging markets – factor investing, or other forms of diversification which are providing ballast to portfolios right now.

We acknowledge that diversification works over time, but not every single time. Diversification isn’t a guarantee against loss. But it is the strategy that has historically provided an optimal trade-off between risk and return.

We won’t give you a dissertation right now, but an entire body of academic literature, beginning with Harry Markowitz’s 1952 paper on portfolio selection and followed by 70+ years of Nobel Prize-winning, market-tested research, has informed our view that there’s no such thing as too much diversification. This is investing based on facts, not fads. We hope seeing it in action provides you some reassurance about your portfolio right now.

We know the storm will pass

While we know the storm will pass, we don’t know when that will happen. It may be a while…but we know from history, storms don’t last forever.

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management.

Notes: Returns are based on price index only and do not include dividends. Intra-year declines refer to the largest market drops from a peak to a trough during the year. For illustrative purposes only. Returns shown are calendar year returns from 1980 to 2024, over which the average annual return was 10.6%. Guide to the Markets – U.S. Data are as of March 31, 2025.

Again, we turn to the long view. Since 1980, on average, there’s been an intra-year drop of 14% every single year in the stock market. That means, at some point each year, there were headlines about market dips, market corrections, and even bear markets. If you constantly refreshed your portfolio results page (or, in the 1980s, flipped to the stock page of the newspaper or tore open the statement as soon as it arrived in the mail), there were many periods that felt like the present.

Paul Volcker and 20% interest rates. The 1987 single-day 23% stock market crash driven by newfangled computers. A secretive hedge fund named Long-Term Capital Management exploding. The Dot-com bubble and wondering how anyone could have paid so much for unprofitable startups. The global financial crisis. The Great Recession. The European debt crisis. The U.S. debt ceiling. The flash crash. The global pandemic. The point is not to be dismissive; some of these were genuinely terrifying moments.

Yet, in 34 out of 45 years, the stock market’s return ended up being positive for the year. Over time, perhaps the biggest risk of all was panicking rather than staying invested.

Our takeaways

1. Diversification Works. We understand this may feel like a scary moment, but we believe the time-tested strategy of building broadly diversified portfolios prepares us for moments like these as much as possible.
2. Stay the Course. With historical evidence as our guide, we continue to believe the best strategy is to hold the course. Stay invested and stay diversified, and you will be well positioned for whenever the storm passes. To press our metaphor, we do not want our portfolios to miss the day that the sun begins to shine again.
3. We’re here for you, if you need us. It’s always tempting to look at financial markets when they’re down and wish you’d fixed your strategy sooner. But it’s never too late to get started.

If you’re ready to get started building the type of broadly diversified portfolio that we help facilitate at Mercer Advisors, let’s talk.

Mercer Advisors Inc. is a parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.

Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy or product made reference to directly or indirectly, will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. Diversification does not ensure a profit or guarantee against loss. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark.

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