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Staying Invested

During Volatile Markets


Recent volatility has reminded investors that markets behave in
unpredictable ways. The S&P 500 fell more than 10% last August and
again early this yearand regained most of its value in a matter of
weeks both times.
Even the most experienced investors find this kind of volatility unsettling. Yes, you
may know volatility is part of investing, and risk is a necessary part of reward, but
knowing it is one thingand living with it is another.
Its no surprise that many investors question themselves during bouts of volatility.
But too often they ask the wrong question: Should I stay in the marketor get out?
Moving in and out of financial markets can actually work against you. Time in the
marketnot timing the marketis what ultimately leads to successful investing.
Smart investors know that patient, long-term investing is the best way to meet your
goals. Your Advisor and other investment professionals at J.P. Morgan take volatility
into account when they help you build a long-term plan. They pursue a globally
diversified approach that has the potential to reduce losses and perform well in a
variety of conditions. In this way, you have the potential to benefit from the upside
potential of investing, while protecting your assets against excessive risk.

SMART S TR ATEGIES FOR S TORMY MARKE T S


Here are some proven strategies you can use to keep your investments on track
and stay investedeven when markets are behaving unpredictably.

hh Create a planand keep it up to date


The short-term ups and downs of the market are less important than
understanding what you want to accomplish, highlighting the importance of
crafting a plan that matches your goals to your resources and executing your plan
consistently. Knowing you have a long-term strategy in place can give you the
confidence to ride out any bumps along the way. If you and your Advisor havent
developed a financial strategy yet, this would be a great time to start. And if you
already have a plan, this is a great time to take a fresh look at it. Even the best plan
may need to be adjusted as your life changes and market conditions evolve.
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35

20 years

30
25

10 year rolling

20

hh Let time smooth out your returns

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A long time horizon can put volatility into perspective. Since 1950, a 50/50 balanced

10
5
0
-5

5 year rolling
1 year

portfolio (divided equally in U.S. stock and bond indexes) has declined as much
year20-year
as 15% over a 1-year period, while returns over rolling 5-year, 10-year 1and

periods have yet to be negative.

-10

In any given year since -15


1950, you could have
earned anywhere from
33% to 15% in a 50/50
balanced portfolio of
U.S. stock and bond
indexes. If you held
that portfolio for
five years or longer,
your range of returns
would have tightened
considerablyand
always resulted in
positive performance.

RANGE OF BLENDED RETURNS1


Annual total returns, 1950 2015
35%

Annual avg.
total return

Growth of $100,000
over 20 years

8.9%

$554,632

50/50
portfolio

33%

30%

21%

25%

16%

20%

14%

15%
10%
5%

1%

2%

5%

0%
-5%
-10%
-15%

-15%
1-Year

5-Year Rolling

10-Year Rolling

20-Year Rolling

hh Dont mistake a bad month for a bad year


When markets tumble, its easy to persuade yourself theyll continue falling. But
even the best years have periods of weakness. The U.S. stock market has risen
by 20% or more eight times in the last 21 years. In each of those years except
one, it suffered a drop of more than 5% at some point during the year. In 1998,
for example, the market fell 19% in July and August, but ended the year up 27%.
Investors who flee at the first sign of trouble risk missing the potential gains
to come.2

Source: Barclays Capital, FactSet, Federal Reserve, Robert Shiller, Strategies/Ibbotson, J.P. Morgan Asset Management.
Returns shown are based on calendar year returns from 1950 to 2015. Stocks represent the S&P 500 and bonds represent Strategies/
Ibbotson for periods from 1950 to 1980 and Barclays Aggregate after index inception in 1980. Growth of $100,000 is based on annual
average total returns from 1950 to 2015.

Source: FactSet, Standard & Poors, J.P. Morgan Asset Management.

Even in the most


successful years for the
stock market, there can
be significant declines
during the year, as
indicated in this chart
showing performance
of the S&P 500 over the
last 21 years.

S&P 500 INTRA-YEAR DECLINES VS CALENDAR YEAR RETURNS3

Annual return

Annual returns positive in 15 of 21 years

Largest annual
market drop from
peak to trough

40% 34
30%
20%

31
20

27

26

20

10%
0%
-10%

-3

-20%

30

23
14
3

13

13

4
0

-8

-11
-19

-12 -10 -13


-17

-30%

-8 -10

-16

-23
-30

-40

-14

-8 -7

-10
-19

11

-6 -7

-1
-12

-28

-34

-38

-50

-49

-60
95

00

05

10

15

hh Diversify, diversify, diversify


Everyone believes in diversification. In theory, it should balance the volatility of
different investments that rise and fall at different times. But its not as easy to
diversify as it used to be. In todays markets, many assets move up and down
together without providing the full benefits of diversification to protect against
volatility. To achieve these benefits, you may need to diversify across many types of
investment risk. At J.P. Morgan, we manage our portfolios with a blend of different
asset classes, different countries, different investing styles, different market
sectors, different types of securities and even different portfolio managers to
reduce volatility and seek higher potential returns for our investors.

hh Be prepared for the turnaround


Some investors try to protect themselves by timing the marketthat is, pulling
their money out when they think the market will decline. These investors risk
missing the markets ups while trying to avoid its downs. Studies have found that
individual investors tend to buy and sell their investments at the wrong times. As
a result, the average investor earned only 2.5% per year over the last 20 years
barely outpacing the 2.4% rate of inflationcompared with an average of 9.9% for
U.S. stocks, 8.7% for a 60/40 portfolio of U.S. stocks and bonds, 6.2% in U.S. bonds,
5.9% in gold, 5.4% in international stocks and 3.2% in home prices.
A large portion of investment gains is concentrated in just a few days of strong
performance. And the markets best days tend to occur around the same time as its
worst daysmaking it difficult to avoid the decline without missing the turnaround
too. Following a long-term plan and investing with a professional advisor may help
you avoid this common mistake.
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Source: FactSet, Standard & Poors, J.P. Morgan Asset Management.

Returns shown are based on price index only and do not include dividends. Intra-year drops refers 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 1995 to 2015.

Missed 20 best days

20000

Missed 10 best days

10000

Fully invested

If you were out of the


market for the 30 best
days over the last 20
years, your average
annual returns in the
S&P 500 would have
fallen from 9.9% to
1.5%. Six of the markets
10 best days occurred
within two weeks of its
10 worst days.

RETURNS OF S&P 5004


Performance of a $10,000 investment between January 3, 1995, and December 31, 2014
$70,000

$65,453

(9.9% return)

$60,000
$50,000
$32,665

$40,000

(6.1% return)

$30,000

$20,354

(3.6% return)

$20,000
$10,000
$0

$13,446

(1.5% return)

Fully
invested

$9,140

(-0.5% return)

$6,392

(-2.2% return)

$4,570

(-3.8% return)

Missed 10 Missed 20 Missed 30 Missed 40 Missed 50 Missed 60


best days best days best days best days best days best days

hh Meet with your advisor at least once a year


Has your family grown? Have you changed jobs? Have you received an inheritance?
Are you planning to move or buy a second home? Any of these life changes should
be discussed with your Advisor and reflected in your plan. And you may be able to
counter the effects of volatility by increasing your savings rate, adjusting your asset
allocation or changing your anticipated retirement age. Your financial strategy will
enable you and your Advisor to test various assumptions and see how they impact
your plan. Sit down with your Advisor at least once a year to review your strategy
and make sure you are still on track to meet your goals.

This chart is for illustrative purposes only and does not represent the performance of any investment or group of investments.
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Source: Prepared by J.P. Morgan Asset Management using data from Lipper. Twenty-year annualized 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. Data as of December 31, 2014.

Investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives will be achieved.
Diversification does not ensure a profit or protect against loss.
The opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends,
which are based on current market conditions. We believe the information provided here is reliable, but do not warrant its accuracy or completeness.
This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The views and strategies described herein
may not be suitable for all investors. This material has been prepared for informational purposes only and is not intended to provide, and should not
be relied on for, accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may
achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as recommendations.
Past market performance is no guarantee of future market performance.
Securities and investment advisory services are offered through J.P. Morgan Securities LLC (JPMS). JPMS, a member of FINRA and SIPC, is an affiliate of
JPMorgan Chase Bank, N.A.

INVESTMENT PRODUCTS: NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
2016 JPMorgan Chase & Co. All rights reserved. SPRING 2016

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