The market had a very bumpy 2015, with a few scary drops, and some quick climbs. The last quarter in specific stocks bounced back for most sectors after the downturn in quarter 3. If you didn’t panic and sell out after the big drop in August, you were rewarded as the S&P 500 index was up over 7% for the 4th quarter. Overall though, most sectors of the market saw a slight decrease in prices for the whole year. The Russell 2500 (US Total Stock Index) was down 2.90% and the MSCI World (International Stock Index) was down 3.04%. As for the Bonds, returns were positive, but not much to look at as the Citi Group World Government Bond Index (1-5 Year Bonds) was up 1.00%.
The following is a letter from Matson Money warning investors about panicking due to short term volatility in the market.
“Despite positive stock market performance for quite a number of years, many voices in the media and subsequently many investors seem to get caught up in the short term volatility rather than this long term steady upward climb. A common phrase that Matson Money likes to use says that “Investors don’t hate volatility, they only hate downside volatility”.
This highlights the difference in mindsets between long term investors and those that panic due to short term downward swings in the market and often hurt themselves because of it. A prudent investor knows that risk and return go hand in hand, and that without enduring the downward volatility, they wouldn’t be able to reap in the benefits of the upward volatility.”
“Historically the stock market has always gone up over the long run and the best way to miss out on that is to give into fear and sell in the short term. Discipline and a prudent investment strategy are not always for the faint of heart; over the lifetime of an investor they will see days, months, and years of negative returns. They will see times when one asset class like the S&P 500 outperforms a broadly diversified portfolio over a short time period, or even times when speculative assets like gold and commodities have huge run ups. Fear and greed are great motivators and even the most knowledgeable and stalwart investor will be tempted to react and rethink their investment philosophy when in the midst of a trying time, while the masses are shouting that this time is different. But if one can persevere and stay the course with an academically engineered, globally diversified portfolio and not give into the temptation of selling out when there is fear, or jumping on board when something is hot, the reward can be great.”
“Matson Money portfolios are designed to dial into academically proven dimensions of return. They contain 19 distinct asset classes that have some historically validated benefits of dissimilar price movement via low correlation and were intentionally chosen to exist together within the portfolio. They are engineered so as to not be dependent on any specific asset class, or any specific market condition. Investors can take heart that these portfolios don’t require a prediction of what the best asset class will be next year, or when the next market drop will occur.”
“In the end, choosing a wise financial strategy – and sticking to it – can have tremendous impact on an investor’s long term financial health. Chasing performance through buying and selling is a risky game. Historically speaking, it will only reduce an investor’s real return. Relying on unbiased, non-emotional advice from a trusted investor coach to make good decisions can help an investor bridge that gap between what the average investor makes and the return of the market.”
1. Matson Money. “Account Statement.” Letter to James Hancock. 18 Jan. 2016. MS. N.p.