Given that 2016 has begun with a steep decline in stock markets and a sharp rise in investor concern, we decided to devote this blog to discussing the current environment and what you should and should not do.
Don’t make assumptions about your portfolio based on headlines.
As of January 20, 2016, stocks globally are down 10% year-to-date and U.S. stocks are down 9½%, but that doesn’t mean your portfolio is down 10%. At SWP, we utilize multiple assets and strategies, and some of these can generate positive returns as stocks decline. In fact, more than 40% of our portfolio components are actually positive year-to-day. The most important of these is the trend-following strategy. As of January 20, 2016, our seven trend-following managers are up an average of +7.42% on the year.
So while stocks are down 10%, our most aggressive portfolios are down roughly 5%, our moderate portfolios are down roughly 4%, and our more conservative portfolios are down roughly 3%.
Don’t listen to market prognosticators; no one can tell the future.
Market opinions are ubiquitous and, unfortunately, many are broadcast with the intention of profiting from a reaction by the masses. In the investment industry we call this “talking your book.” But even prognosticators with the purest of intention lack a crucial element; the ability to foretell the future. And even if one could correctly predict future events, that doesn’t mean he or she will profit from this information. Markets are very complex systems, with prices driven by millions of people reacting to millions of factors, and people often do not react as one might expect. Investors with a portfolio built to withstand the unknown will almost always outperform investors who make decisions with their ‘certain’ knowledge of the future.
View the other side.
Fear and greed are the twin destroyers of wealth. Reacting on emotion can have a terrible impact on your financial future. If you cannot avoid the noise and find yourself developing a dogmatic opinion of where the markets are headed, it might be helpful to listen to what the other side has to say. For every 1,000 well-educated market “experts” with mountains of statistics supporting their excellent arguments of why the markets will decline, there are 1,000 equally well-educated “experts” with mountains of statistics supporting their excellent arguments of why the markets will rise, and vice versa.
Give us a call.
We remain committed to the dual objectives of mitigating risk and attaining steady growth. So please, give us a call at 214.727.6000 if you have any questions about this blog or investments in general.