Frequency of Monthly Real Losses

April 26’s post explored the frequency with which your investment accounts can be expected to show real, inflation-adjusted losses. And the clear pattern was this: Look at your account annually, and it’s scary; losses are depressingly frequent. Stretch out your interval between measurements, and losses tend to melt away. Time—if you’ve got it—heals all losses.

What if you go in the other direction? What if you measure the progress of your investment account more frequently, rather than less? After all, who can resist reviewing their accounts frequently? As indeed you should.

Not surprisingly, it turns out the pattern holds when you shorten the interval to a month. The frequency with which investments have incurred monthly real losses is a bit greater than the frequency of annual real losses. Here are the results for the 999 months between January 1926 and March 2009. Stocks have suffered a real loss in value 41% of the time (compared to 33% calendar year losses). Bonds have suffered a real loss 44% of the time (compared to 39% calendar year losses). And a 50%-50% mixture of stocks and bonds has suffered a real loss 41% of the time (compared to 31% calendar year losses).

As in April 26’s post, stock performance is measured by the total return on the S&P 500, including appreciation, depreciation and dividends. Bond performance is measured by the total return on intermediate term Treasury bonds. And inflation is measured by changes in the consumer price index.

So what’s the message? Quoting the great philosopher, Betty Davis in “All About Eve”: “Fasten your seatbelts. It’s going to be a bumpy ride.”