Returns have been pretty bipolar thus far this year. After a very bad start in January, the market was back up and doing well until turmoil hit with Brexit Vote, and now everything is good again. As of the end of June, the Free Market US Equity Fund (diversified US Mix) was up 3.3%. The Free Market International Fund (Diversified International Mix) was down just a tad at -1.93%. Bonds have been solid as the Free Market Fixed Income Fund (Diversified Short Term Bond Mix) was up 2.56%. If anything, we learned once again that you can never predict the market in the short term.
The following commentary on the second quarter market returns is from the Matson Money Quarterly Statement.
“The 2nd quarter of 2016 was dominated by headlines from across the pond. The impending European Union referendum vote was looming over European markets and across the globe for much of the spring, with the popularly coined “Brexit” seemingly leading every news cycle. Finally on June 23, the citizens of the United Kingdom voted, and in a surprise result, the majority decided for the UK to leave the European Union. This result sent ripples around the world, and fear and panic took hold in the stock market. Stock prices fell sharply immediately after the news came in; both US and UK large stocks fell over 5% in the 2 days following the vote, with the S&P 500 Index down 5.34% and UK Stocks as represented by the FTSE Index down 5.62%. In addition, the Nikkei 225 Index – a benchmark for Japanese stocks – plummeted 7.92% in one day. However, as we often see, these panic induced drops did not persist. In fact, by the end of the quarter just a week later, much of these losses had already been recovered; US and Japanese stocks were up 4.91% and 4.89% respectively, while UK stocks were actually trading higher than before the drop, up 8.73%.
This Brexit-mania can be a good lesson for investors. Especially in the modern era of 24 hour news cycles and social media, it is easy to fall prey to the fear mongering of these platforms talking up the geo-political disaster du jour that will bring the global economy to its knees. In the last year alone we’ve seen Brexit, Grexit, and Chinese asset instability all highlighted in the media as the next calamitous event that will sink the economy. Although these types of events can often result in short term volatility, those that have not let it affect their investing strategy have noticed that these events have come and gone without the disastrous results that many predicted. If one had simply turned off the news and tuned out the noise, they would have seen that the S&P 500 Index had a solid quarterly return of 2.46% during the 2nd quarter.
Acting on impulse as a result of a scary event in the news is not a new thing, and unfortunately it has been detrimental to investors throughout history if they panicked and sold out of equities as a result. Over the last 90 years, investors have seen The Great Depression, World War II, the Cold War, and 9/11, and through it all had they stayed invested in a simple 50/50 mix of the S&P 500 index and 5-Year Treasury notes, they would have experienced zero 10 year periods in which they suffered a loss, and an average annual return of 8.69%. Although past performance is no guarantee of future results, historically, those that have stayed disciplined have been rewarded.
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.”
By Jimmy Hancock
References
1. Matson Money. “Account Statement.” Letter to James Hancock. 17 Jul. 2016. MS. N.p.