Christopher W. Marx

In a Wall Street Journal article last week, financial advisors described how exuberant investors had unrealistic expectations for stock market returns after a six-year rally. We think a more pragmatic approach should aim to beat a slower-paced market in an effort to capture compounding returns.

After nearly nine months of calm, equity market volatility has returned and is threatening investors with the prospect of losing money. We believe the recent episode in US and global stocks reinforces the case for having a strategic allocation to equities that can withstand shocks.

Though they’ve defied expectations this year, higher interest rates appear to be all but inevitable. Investors need to take measure of the rate sensitivity in their portfolios—and stay agile—to negotiate the rough market crosscurrents a rate reversal may bring.

With markets so calm, it’s easy to become complacent about the corrosive effects that volatility can have on long-term investment success. If you don’t need the money for a long time, you can ride out the inevitable market squalls. But if you’re close to or already drawing from those funds, volatility can be costly.

Global equities are notching new highs, valuations are elevated and talk of market bubbles is increasingly common. Yet, by our measure, the potential for outperformance in value stocks has rarely been better. How can that be?