Kicking Off 2016Submitted by DSI Wealth Management on March 2nd, 2016
To Our Valued Investors:
Well, 2015 is officially in the record books and 2016 is upon us like a 300lb sumo wrestler. We are now coming off of almost 2 years of lackluster returns and the start of this year so far isn’t giving us reason for a whole lot of hope. 2015 was the year of the FANG Stocks; That is Facebook, Amazon, Netflix, and Google. Each of these four stocks had a banner year which helped in a very large way to support the overall performance of our domestic equities indices for 2015. Without these four companies, our major indices would have likely been negative for the calendar year. On top of that, if you had any exposure to international equities, the energy sector, or just about anything other than those four companies, your portfolio didn’t fare so well.
Historically, owning a globally diversified portfolio and staying invested through thick and thin would have provided investors with a smoother ride than if they owned just one asset class or tried to time the markets. Furthermore, the average returns for a globally diversified portfolio would have been similar to what you would have experienced had you just bought and held a US equity index for that same time period. From 2000 to year end 2015, your average annual return for an Asset Allocated portfolio would have been 13.5% vs 16.9% if you just owned US Large Cap Equities (According to JP Morgan’s “Guide to The Markets” Q1 2016 Guide) If you look at the wild ride you would have had to have taken had you been solely invested in US Large Cap Equities, it becomes very clear why it’s so important to have a globally diversified portfolio, and why it’s worth giving up over 3% annually. Many of us would not have had the intestinal fortitude to stay invested during some of the more volatile years if we owned just one asset class.
So now that we have experienced pretty lousy returns for the previous two years, is it time to change up our strategy? Is our entire investment philosophy broken? We feel that it is important now more than ever to maintain our thesis. We are all long term investors that understand that we simply cannot make money every day, month, and calendar year. If history has taught us anything though, it is that if we stick to our long term investment objectives, and if we stay within our risk tolerance parameters, we should always come out of this A OK! Consider this: In a recent study by the Chief Investment Officer of AssetMark, Jerry Chafkin, he highlights the poor performance of international equities over the last few years. This poor performance has certainly hurt a lot of our own portfolios, yet we have maintained that we need to have this as part of our total strategy. This is what the study says- “Looking back at international equity returns since 1990, there were 86 rolling 24-month periods with negative returns. The average annual return in the subsequent 24-month periods was 12.56%. While this doesn’t guarantee that next year’s returns will be higher than this year’s, it does highlight that investment returns are neither consistent nor earned evenly over time.” – CIO Perspective: Looking Back at 2015, Jerry Chafkin of AssetMark.
Reading this may not give you the warm and fuzzies, but hopefully it shows you that a disciplined approach should pay off in the long run. We know that markets like these shake investor confidence. We know how hard it is to not pay so much attention to our monthly or even quarterly statements and to tune out the noise that we hear on the radio or the TV. Remember that we are invested side by side with you! But we wouldn’t be earning our keep if we rolled over every time you told us you were frustrated with your performance and you wanted to make a change. As the old saying goes, “It’s not timing the markets, it’s time IN the markets.”
With all of that being written, we should leave you with some positives. The Fed finally raised rates by 25 basis points in December of 2015. This is a sign of a strengthening economy and not a weakening one. Historically, rising rates have been positive for the equities markets. We are now in an election year. All politics aside, the months following an election have historically been positive for the equities markets. We continue to get good jobs reports. The housing market continues to improve. Wages have steadily improved. Gas remains relatively cheap as supply is still gluttonous. Sure, the news out of China isn’t great, but it’s also not as bad as the market has perceived it is. China’s GDP is still growing at a faster rate than our own, but let’s not forget that China does not represent 100% of our world economy. Will any of these themes help our portfolios in 2016? We sure hope so, but of course there are no guarantees.
As always, we appreciate your confidence in what we do. We encourage open discussion and feedback all along the way. Please know that we understand that you have choices with your money and that’s not something we take lightly. Thank you as always!
DSI Wealth Management Group, Inc.