What a challenging year for the financial markets!
U.S. blue chip stocks managed to squeak out a small gain in 2015, but required nearly a 7% advance in the fourth quarter to do so. Stock prices of smaller companies, on average, fell by about 4.5% for the year.
Emerging market stocks (-14%), energy-related stocks (-27%) and precious metals (-23%), were all notable segments of negative performance during 2015, while health (8%) and technology (5%) stocks led the way on the positive side.
With the Federal Reserve Board’s decision in the fourth quarter to begin raising interest rates, only the highest quality and shortest term bonds managed to produce positive annual returns for the year. With the Fed providing direction to investors that it plans to continue to raise interest rates to more “normalized” levels, many believe that the performance of bonds may continue to stall.
So – what’s next for the U.S. economy? Will the Fed’s interest rate hikes slow economic growth domestically? Will the emerging market economies stumble given slowing growth in China? It seems as though the upcoming election cycle is going to be unpredictable, how might that impact stocks?
These unresolved questions all seem pretty important at the moment. However, will these temporary issues have a meaningful impact on a well-diversified, long term investment strategy? Of course not, but uncertainty does create increased volatility in the markets that can be unsettling for even the most seasoned investors.
During periods of market uncertainty, it is important to remind yourself of the following:
- Your investment strategy is based on a customized set of circumstances and your expected cash flow requirements.
- Your portfolio is much more diversified than the Dow Jones, the S&P 500, or any other commonly quoted index. As such, the performance of your portfolio will vary somewhat from these equity-based benchmarks.
- You have an extended investment time horizon; therefore, day-to-day portfolio fluctuations will not have a meaningful impact on your lifestyle in retirement.
- Occasional setbacks are expected, necessary and (actually) healthy; they should be approached opportunistically and with confidence.
It is our hope that as the year progresses, you will find confidence and peace of mind knowing that you have a sound investment strategy.