After a volatile year for the markets in 2015, the start to 2016 has carried on the same theme. In regards to an economic outlook, we leave the analysis and potential impacts of China’s economic slowdown and the drop in the price of a barrel of oil to the economists. The 2016 outlook is discussed in great detail (see attached). Certainly these two items are dominating headlines and are the current excuse for the gyrations in worldwide stock markets.
Once again for those looking for it, you will find plenty of media hype and hyperbole. For those that are not, you’ll likely find much less stress and worry. We have a few clients living and working outside the USA. It is always interesting to visit with them and realize how sensationalized media can be. They are disconnected from the hype we are fed on a daily basis. It is critically important for every investor to realize our emotions can become amplified during negative market cycles. Studies have shown the emotional anxiety triggered from investment declines elicit the same chemical response in our brains as in an instance of mortal danger. This can be very taxing. Thus it is up to each of us to retrain our minds during these environments if we are going to be a successful long-term investor. We applaud you, your responses to us almost always indicate you’re already well down this path of emotionless investing.
Additionally, we are all trained when something is uncomfortable in our life to do something different. However, in investing, this response has historically been one of the greatest detractors to families reaching long-term goals. As advisors we’ve heard many stories of individuals who capitulate to anxiety and fears harming their ability to obtain life goals. We are investors, not market-timers. Why? Because market timing has no long-term track record of success. From day one, we build portfolios with the expectation that we’ll experience corrections, recessions, and volatile markets. This is, in part, the reason for asset class diversification, manager diversification, ongoing rebalancing, and methodical security selection within every portfolio we construct.
Certainly major portfolio readjustments should and do occur over time, but not due to short-term fluctuations. Allocations and risk taken in a portfolio are driven by your goals. A change in family goals is the number one driver for significant changes in portfolio allocations. Our firm is passionate that a thorough and dynamic financial plan is the driver to success in investing and in turn achieving your long-term goals. Because of this belief, we are much less concerned about any short-term market fluctuation whether it be, China, Greece, oil, debt downgrades, terrorist attacks, natural disasters, wars, interest rate policy, shifts in currency, etc., etc. The four most dangerous words in investing are “this time is different”.
Once again, negative returns are difficult to swallow. NO ONE, regardless of their title, can speak with confidence to where markets go in the short-term. History has proven over and over again, that the long-term investor will be richly rewarded. We are confident this will continue to be so!
To read the Fourth Quarter Economic Outlook click on the below link: