Investment Strategy

Back to school: 3 principles for your portfolio

School is back in session. The S&P 500 has added another +6% after an eventful summer, and is now up +17% year-to-date. Federal Reserve Chair Powell’s comments at the annual Jackson Hole Symposium ought to send us into a fall defined by lower interest rates.


Over the last year, markets have consistently reflected a brighter outlook ahead. Optimism around a “soft landing” for the U.S. economy is intact, inflation is no longer threatening, corporate earnings have been solid, and consumers still have gas in the tank. 

Nonetheless, the volatility we saw earlier this month reminds us that both risks and uncertainty remain. How low will interest rates have to go to support the labor market? Who will win the U.S. presidential election? Is it already “make or break” for AI investment? 

So after a summer of big swings and even bigger questions, it’s important for investors to remain focused on what matters. 

In the spirit of back to school, we want to step back and share three of our favorite investing principles to prepare portfolios for the start of the school year and beyond—so sharpen those pencils and crack open a fresh notebook.

3 principles to consider for your portfolio 

1. Know your toolkit: Each asset has a role to play. If you’re looking to get top marks this year, having the right school supplies is likely the first step. From the trusty pencil to the elegant protractor, to the almighty graphing calculator, each item has a purpose. Your portfolio is no different. Whether it’s cash, stocks, bonds or alternative investments, each asset has a distinct role to play—and they work together to achieve your long-term goals.

Equities and fixed income have outperformed cash and inflation

Growth of $100 in various assets and inflation from 1991

Source: Bloomberg Finance L.P., J.P. Morgan Asset Management - 2024 Long-term Capital Market Assumptions (LTCMAs). Global equities represented by MSCI World USD Total Return Index, U.S core fixed income by Bloomberg U.S. Investment Grade Bond Index, U.S. Treasury Bills by Bloomberg U.S. Treasury Bill 1-3 months Index, U.S. Inflation by U.S. Headline Consumer Price Index (CPI). Historical data as of July 31, 2024. LTCMA projections as of September 30, 2023.
  • Cash: Everyone needs cash. From filling up your car at the pump to your down payment on a house, cash is king. Many also think of cash as a safe haven or even a source of income when interest rates are high. But cash isn’t designed to beat inflation. This means it is equally important to think about how much you really need to hold, and how much, if any, can be redirected to other types of investments in order to achieve your goals.
  • Bonds: Fixed income can provide stability. Because bonds offer you coupon payments over time, in addition to returning your initial loan amount, they help reduce uncertainty and volatility in your portfolio. The central risk when it comes to bonds is that the issuer does not pay you back. That said, defaults have been exceedingly rare for investment grade debt (for corporate bonds, default rates have been around 2.5% since the Great Financial Crisis, and less than 0.1% for municipal bonds). Fixed income should outperform both cash and inflation. It also tends to be less volatile than equities. 
  • Stocks: When you own a stock, it means owning a stake in a company and its future performance—the good and the bad. Stockholders tend to benefit from earnings growth and the dividends companies pay to reward shareholders. Since 1991, earnings and dividends have contributed almost all of the 3,205% total return for the S&P 500. Changes in valuation drove less than 5% of the total return. Over time, equities are typically the engine of capital appreciation for portfolios, and they can provide the highest expected return. It just comes with higher volatility. 
  • Alternatives and real assets: Hedge funds, private equity, private credit and other real assets, such as real estate and commodities, can provide unique exposures to portfolios and allow investors to tap into more targeted exposures. Doing so can potentially increase returns while reducing volatility—but it also might come with the cost of locking your money up for longer. 

Remember, while each has a distinct role to play, the ultimate key to notching consistent returns over the long haul is diversification across asset classes and, of course, staying invested.

2. Maintain a long-run mindset. Beyond having the right supplies, the next step to being teacher’s pet is having the right mindset. For investors, a long-run mindset, in particular, can help pave the way for success. 

Recent volatility is a prime example that over the short term, different assets can have a wide range of possible outcomes. That said, history tells us that over the long term, the possibilities can be much more certain. 

For example: While rolling 12-month stock returns have varied widely since 1950 (as high as +60% to as low as -41%), a blend of stocks and bonds has not suffered an annualized negative return over any five-year rolling period over the past 70 years. Remember, past performance doesn’t promise future results, but that’s a compelling track record.

So even though markets can always have a bad day, week, month or even year, history suggests investors are less likely to experience losses over longer periods—especially in a diversified portfolio. Above all, keep the time horizon of your goals in mind. A bucketing approach can be helpful to determine how and where to invest your money over various time periods.

Range of stock, bond, and blended total returns

Rolling annualized total returns, 1950 - 2024

Source: Barclays, FactSet, Federal Reserve, Robert Shiller, Strategas/Ibbotson, J.P. Morgan Asset Management. Returns shown are rolling monthly returns from 1950 to June 30, 2024. Stocks represent the S&P 500 Shiller Composite, and Bonds represent Strategas/Ibbotson government bonds for periods from 1950 to 2017, then Bloomberg Finance L.P. Barclays U.S. Treasury Total Return index from 2017 to 2022. 60/40 portfolio is rebalanced monthly and assumes no cost. Analysis is based on the J.P. Morgan Guide to the Markets – Principles for Successful Long-term Investing. *Actual worst 5-year rolling return of hypothetical 60/40 portfolio: -0.076%. Data as of June 30, 2024.

3. It’s about time in the market, not timing the market. The next step on the road to valedictorian is staying out of trouble. Discipline can help us avoid falling victim to bad habits. For investors, one of the worst habits to have is trying to time the market.

Since the start of the year, we have seen the S&P 500 make almost 40 all-time highs. When market levels are elevated, it may lead some investors to feel like it is too late to get invested, which often keeps them on the sidelines in the hope of a pullback While we did see an -8.5% drawdown from July highs, trying to get the timing just right is a dangerous game to play. 

For other investors, market pullbacks do not feel like an opportunity. Instead, the fear associated with them and the ensuing volatility may push them out of the market, causing them to miss the rebound on the other side. 

Let’s look at some numbers: If you put $10,000 into the S&P 500 in 2004 and stayed fully invested through today, you would have over $70,000. If you missed just the 10 best trading sessions, though, you would be left with under $35,000. The reason? Market timing is incredibly difficult. Over the last 20 years, seven of the 10 best days occurred within 15 days of the 10 worst days. 

Performance of the S&P 500: Missing Best Days

Annualized performance of a $10,000 investment from July 2004 through July 2024

Source: J.P. Morgan Asset Management analysis using data from Morningstar Direct. Returns are based on the S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large capitalization domestic stocks representing all major industries. Past performance is not indicative of future returns. An individual cannot invest directly in an index. Analysis is based on the J.P. Morgan Asset Management Guide to Retirement. Data as of July 31, 2024.

Above all, keep your goals and the intent for your wealth top of mind.

Predicting where the market might be headed can be complex and overwhelming, but the real key to investing can be as simple as having perspective and sticking to your plan. Your J.P. Morgan team is here to help you do the “homework” that may be required to achieve your goals. 

All market and economic data as of August 2024 and sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

We believe the information contained in this material to be reliable but do not warrant its accuracy or completeness. Opinions, estimates, and investment strategies and views expressed in this document constitute our judgment based on current market conditions and are subject to change without notice.

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  • Past performance is not indicative of future results. You may not invest directly in an index.
  • The prices and rates of return are indicative, as they may vary over time based on market conditions.
  • Additional risk considerations exist for all strategies.
  • The information provided herein is not intended as a recommendation of or an offer or solicitation to purchase or sell any investment product or service.
  • Opinions expressed herein may differ from the opinions expressed by other areas of J.P. Morgan. This material should not be regarded as investment research or a J.P. Morgan investment research report.
As we prepare to say so long to summer, we thought it apt to review some investing basics for the year ahead.

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