Volatility is Normal
The exceptional investment returns for 2013 are still fresh in investor's minds, however, we must remember last year was the exception, not the norm. U.S. equity markets have struggled to find a direction year-to-date, and going forward, investors should not be surprised by mean reversion in both annual returns and volatility.
As shown in the chart below, the maximum drawdown so far this year was 5.8%, equal to the largest pullback in 2013, but well below the average since 1980. Although equity markets saw stellar returns last year with minimum variance, investors should expect more normal levels of risk and return in 2014.
Source: Standard & Poor's, FactSet, J.P. Morgan Asset Management. (May 19, 2004)