"Markets move quickly!" – you’ve heard me say it or write it countless times.
The S&P 500 (which represents over 500 of the biggest companies in the U.S.) had its worst December since 1931. What happened next? The S&P 500 had its best January since 1987. In December, did we panic and sell? No. In January, did we get over-confident and make irrational decisions? Didn’t do that either. Instead, we stayed calm. And we stayed calm because we know this is what markets do; they’ve done this before too many times to count, so when it happened in December / January, we were prepared and we knew how to handle it, and when it happens again, we’ll be prepared for that too.
Kudos to our clients because not one panicked in December; there were emails and phone calls, which are welcomed, but nobody sold while the markets were down. If it was warranted, we took opportunities to shift money into stocks for clients and (on paper at least) they’ve received a little extra boost in their portfolio’s value with January’s rebound, more so than if we had done nothing in December, or even worse, had we sold in December.
Again, stay calm and stay the course, but the more of these quick volatile moves we get through, the better prepared and less worried we’ll be when they happen again.
Q4, 2018 MARKET SUMMARY
Please click here for the Q4, 2018 Market Summary provided by DFA. Q4 was very bad for U.S. and foreign stock markets, as well as global real estate exposure. Please take a look at page 4 (also pasted below) for a long-term market summary. Here you’ll see all big red down arrows for our 1-Year market performance, but, more importantly, don’t overlook the big green up arrows that represent 5 and 10-Year market performance. When investing in stock markets we know a lot of short time frames, like a month, a quarter, or maybe even a year or two will be down red arrows, but that’s OK because we invest in stocks for long time frames, like 10 years, 20 years or even more. And long time frames will show us plenty of big green arrows pointing up.
10.10.2018 MARKET RECAP
So far, the month of October has given back all the gains of the S&P 500 3 months prior. In other words, the price of the S&P 500 Index on July 10th is pretty close to its price today. It’s important to keep in mind that stock markets go up and down quickly; very seldom do we see slow and steady growth or slow and steady declines. What do we do about these quick movements? Stay the course. This might be a bump in the road towards higher stock prices or this might be the beginning of a long road down for stock prices – we just don’t know which one will happen next. We’re not going to know when to get out before sharp declines happen or when to get in before quick rallies happen, so we need to stay invested every day. When we stay invested every day we’ll take part in all of the markets’ upswings and downswings, but we take comfort in knowing we’ll participate in more and larger upswings than downswings, and over time, this will build wealth for us. This is what markets do – sharp movements, and the ones to the downside feel like they hurt more, but keep calm, stay the course and you’ll be well rewarded in the end.
CHASING PERFORMANCE
Here’s [original link to video has been moved] a short video explaining why we don’t chase performance. Chasing performance would be looking back at which mutual funds had great years and then investing in those mutual funds thinking [hoping] their great performance would continue. Most times this isn’t the case, and at least not enough to even make this a sensible investing strategy. There’s good evidence to support chasing performance doesn’t win in the end, but what does win the end is diversification, low-cost, and patience.
HOW WE HELP OUR CLIENTS PURSUE A BETTER INVESTMENT EXPERIENCE
DFA, the mutual fund company in which our clients' money is invested, has put together a presentation titled Pursuing a Better Investment Experience. It highlights 10 key decisions that can help investors target long-term wealth building strategies. The linked PDF offers a very clear and concise explanation of these 10 key decisions. There is also some additional information about each topic to read by hovering over the conversation bubble in the top left corner.
I especially like Item 8. Manage Your Emotions on page 9 and Item 10. Focus on What You Can Control on page 11. Part of our job is to manage your investing and retirement emotions. We don’t want our clients to get too high (“elation”) or too low (“fear”) as they journey through life towards a safe, secure and comfortable retirement. In doing this we focus on what we can control: creating an investment plan, diversifying, keeping expenses low while minimizing behavior that increases taxes, and staying focused and disciplined through the markets ups and downs.
Q2, 2018 MARKET SUMMARY
For most quarterly reports I like to draw your attention to the article included at the end of the report, this time around the article is one I sent out two months ago. Why would you have not read it then 😊, but just in case you missed it, you can check out the article and my take on it here.
Also, a page included in every quarterly report is the ‘World Stock Market Performance” that can be seen on page 4. You can see major headlines from around the world…good, bad, and indifferent. Do these headlines explain market performance? Maybe, maybe not. Most often we don’t truly know what makes a marker go up a few points today and down a few points the next, but it is important to remember these headlines remind us to view daily events from a long-term perspective and to avoid making long-term investment decisions based on short-term headlines.