There have actually been complaints in the media and news about how “boring” the stock market has been so far this year. Boring is bad in sports, but in the stock market it is usually a good thing. There has been slow but steady growth in every single sector and sub sector of the market year to date. Matson Money sends quarterly reports to all of our clients and to us. This is what they have to say about the market after quarter Two.
Quarterly Report: Matson Money
“From stocks to bonds, and developed markets to emerging markets, world financial markets have rallied in unison during the first half of 2014. The Dow Jones Industrial Average was up over 1.5%, its fourth-straight first half-year rise. In addition, the MSCI World Index of developed-world equities rose 6.52% and the MSCI Emerging Markets Index was also up 6.32% in the first six months of 2014. The rallies reflect continued market resilience amid world political and economic unrest.
Following last year’s stellar returns and decent first six-months this year, many undisciplined investors may be swaying in their investment strategy. A couple of years of gains or losses often turn investors, who have planned on a thirty-year investment time horizon, into investors with only a one or two year time horizon. When investors see losses, they want out; when they see gains, they want in. Investors’ tendency to extrapolate recent trends in stock prices is well documented. There are several different studies over the last few years which provide a good amount of evidence that investors’ risk tolerance increases when equity markets are high (when investors should be rebalancing and shifting money out of equities). And that individuals are most risk averse when equity markets are low (when investors should be buying more equities). A 2007 study done by Geoffrey Friesen and Travis Sapp found that investors lose on average 1.56% annually in return, because they tend to pull money out of equity mutual funds following a market decline when it is more favorable to buy more equities (buy low). Conversely investors increase equity allocations following market increases when you should rebalance out of equities (Sell high).” 1
They go on to list the some of the returns of other sectors of the market.
S&P 500 Index- 7.14%
MSCI World Index (Excluding US) – 5.76%
Index: Barclays Cap. U.S Govt./Credit – 2.25% 1.
Verdict?
As you can see, the stock market is in a peaceful positive state as of right now. We know it will not always be that way. We don’t and can’t know when the next big drop in the market is, but we can stay disciplined now and when that time does come. Stay diversified, rebalanced, and focused on the long term and you will make it through any crash.
by Jimmy Hancock
References
1. Matson Money. “Account Statement.” Letter to James Hancock. 1 Apr. 2014. MS. N.p.