In an effort to keep our valued clients more informed about market news, as well as news about the happenings of Financial Strategies Group, we intend to send periodic emails like this one. We hope you find the information valuable and we look forward to your feedback.
Although we are only a few weeks into 2016, markets are off to a rather bumpy start. As a result, we at Financial Strategies Group felt it was important to share with you a summary of what has happened, what is happening, and a little historical perspective. Below are a few bullet points.
- The S&P 500 Index has now declined over 10%1 from its all-time high amid concerns about China’s economy, stock market and currency—plus the impact these dynamics could have (and have had) on commodities (specifically energy), the U.S. economy, and corporate earnings.2 The fourth quarter earnings season is now getting underway and investors will want to assess the results and outlooks that corporate managements provide. (Attached is a more detailed explanation of the shake-up in China).
- The current decline marked the first to reach the 10% threshold since May–August 2015 and the fourth since the bull market began in March 2009. Since 1928 the S&P 500 Index has averaged a 10% or greater decline just over once per year.3
- There are steps investors can take to help manage volatility, such as diversifying into asset classes—like alternatives—that complement traditional asset classes such as stocks and bonds. In addition, investors can incorporate lower volatility equity solutions to replace higher volatility ones while maintaining target asset allocation weights.4
- Finally, keeping cool often has its rewards. Historically, the longer one’s holding period, the more likely one has been to experience positive stock market returns.
Of course, we cannot predict what the market is going to do, however history shows us that 10% declines are not that uncommon. The S&P 500 has averaged a 10% or greater decline just over once per year since 1928.5 In addition, large declines in the S&P 500 are typically followed by positive returns the next 5 years.6
In conclusion, we at FSG firmly and vehemently believe that diversification pays off in the long term. Trying to time the market can be dangerous and often damaging to investment returns. Changes to a portfolio should be based on long term goals and objectives not short term market fluctuations. To summarize, although large market fluctuations can be difficult to watch reacting to these fluctuations can often cause more harm than good. This is why we are maintaining our disciplined investment philosophy of diversifying among multiple asset classes with a long term goal oriented focus.
- 1 http://www.advisorperspectives.com/dshort/updates/Current-Market-Snapshot
- 2 http://money.cnn.com/2016/01/12/investing/stocks-lose-1-trillion-2016
- 3 Source: Morningstar, as of 12/31/15
- 4 Asset allocation does not ensure a profit or protect against a loss, but is intended to help you manage your goals and risk tolerance. A strategy involving diversification does not assure a profit and does not protect against all losses in declining markets. The S&P 500 index is an unmanaged index and cannot be invested into directly.
- 5 Source: Morningstar, as of 12/31/15.
- 6 http://usatoday30.usatoday.com/money/perfi/stocks/2011-06-08-stocks-long-term-investing_n.htm
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.