2-Minute Investor Update – January 2016
2-Minute Investor Update
January 19, 2016
2015 turned out to be a lackluster year for investors. Oddly enough, however, the frustration with last year’s results is already fading – replaced with concern over stock markets around the world showing significant volatility and weakness.
With those dual disappointments in mind, following is a very brief summary of our thoughts:
What Happened in 2015?
Economic news was generally good, especially in the U.S. (falling unemployment, decent corporate profits, strong U.S. dollar and reasonable economic growth). As a consequence of the slow-but-steady recovery, the Federal Reserve finally started raising interest rates at year-end. Though this is potentially unsettling for markets in the short-run, this is actually a good sign that things are improving.
Yet looking back at various asset returns, there was little to cheer last year. Bonds earned less than one percent, and large-company stocks rose 1.4%. That’s the extent of the good news. Every other major asset class was down last year – in some cases significantly. As a result, our time-tested approach of diversifying client portfolios simply didn’t help. That doesn’t mean it won’t work again, just that 2015 was one of those frustrating years where things didn’t work in our favor.
To be sure, however, 2015 was not a bad year. We need only to rewind to 2008 to see what “bad” looks like. Investors who take any type of risk must be prepared to weather the inevitable storm – whether that takes the form of a genuine bear market rout or merely the slight headwinds of 2015.
But What’s Happening Now?
2016 is starting out badly for stock market investors. The decline appears to be driven by news of slowing growth in China, the continued slide in oil prices, or perhaps just market skittishness after a spectacular rally that’s lasted almost seven years. Whatever the reason, stocks have been tumbling.
That may continue. Or maybe not. The point is that we just don’t know. In fact, no one knows, despite what they may lead you to believe at the cocktail party or in the newspaper or on TV.
So What Do We Do?
The key to investment success – which we define as meeting your goals and controlling risk, not as “beating the market” – is to prudently allocate assets and to keep a long-term perspective. This is especially true for any “risk-based” assets like stocks; in order to experience the inflation-beating growth they offer, we must also be willing to deal with the declines.
Our team at SWP spends time trying to gauge each client’s circumstances prudently, exposing each portfolio to an appropriate amount of risk that will allow it to withstand the swings in the markets. And we’re always looking for new or different strategies that may be appropriate. Over the past several months, for example, we made a number of changes and added new vehicles as appropriate to most client portfolios. We’ll continue to monitor the environment and make adjustments as needed.
While the current environment is challenging for all assets, we continue to believe that the best course is to stay the course.
As always, we would be happy to discuss your particular situation at any time.
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