January 2, 2018

2017 4th Quarter Update

Written by Andrew Hunt

As the 2017 market analyses have begun rolling in, so too have the reports of long and strong positive performance from almost every corner of the market. One Wall Street Journal (WSJ) year-end report summarized: “Sure, U.S. stocks had solid gains. But investors who bought copper, Argentine stocks, and lumber futures would have also ended the year with hefty profits.”

In particular, the S&P 500 Index has been on a record-busting tear, experiencing positive total returns every single month last year. This is “the first time in records going back to 1970 that’s happened,” reported the WSJ, along with the observation that these returns were delivered in an exceptionally smooth ride, with the fewest up-or-down return swings of 1% or more since 1965.

What are we to make of all this? As always, we turn to evidence-based investing, disciplined rebalancing, and your personal Investment Policy Statement (IPS) to guide the way – whether it’s to enlighten us during dark and scary markets, or to offer a clear lens through which to view the recent rose-colored returns.

Has the smooth ascent lulled you into forgetting what it feels like to be afraid? (Remember 2008?) 2017 market growth has been gratifying indeed. But if your highest-flying holdings have significantly outpaced your planned allocations to them, your IPS tells us when it’s time to get back on target, replacing blind ambition with thoughtful, “buy low, sell high” rebalancing.

Has the unprecedent run left you a little nervous? When it comes to market returns, there’s plenty of evidence to suggest that nothing this good lasts forever. But is there a right way to respond to this rational concern? Again, your IPS informs us on how and when to rebalance back to target in high-rising markets by shifting a portion of past gains away from market risk, without diminishing your desired exposure to future expected growth.

In short, whether current markets leave you enthused and excited, fearful and fretting, or a little bit of both, we remain committed to: (1) applying evidence-based investment theory to your portfolio management, (2) adhering to your IPS as our ongoing road map, and (3) incorporating rules-based rebalancing to help maximize your expected returns while minimizing the market risks involved. No strategy is guaranteed to succeed, but we continue to believe ours is the most practical approach to achieving your financial goals, come what may in 2018.

On that note, we wish you and yours a healthy, prosperous and peaceful year ahead. Please let us know how we can help.