In April 2014 I wrote an update to my clients describing how well the stock market had done in 2013. Generally speaking markets were up 20-30% last year. My overriding message was enjoy the gains of the last few years and don’t expect much in 2014. An increase between 5-10% for the year would be very acceptable, I wrote, and a loss of a similar amount would certainly not be surprising.
By September 18th 2014 the S&P 500 index was at an all-time high and up 9.8% for the year. This is a great example of how unpredictable equity markets can be. Up another 10% in 2014 after growing more than 150% since its low point in March 2009.
Hold on! As of October 15th the index had dropped 8% and was up less than 2% for the year. People were talking about all the reasons for the drop—ISIS, EBOLA, International economies, interest rate changes, and more. Those of us who believe markets move as a result of investor’s emotion as well as “real” financial factors don’t spend much time examining the cause for changes that occur every few weeks or months.
As I have written before…”it’s time in the market, not timing the market”. Stay invested through the ups and downs of our world economics and we will be rewarded with an acceptable return.
Hold on again! As I write this on November 4th the S&P has rebounded to another all-time high in just two weeks. Up more than 8% in two weeks! Do we need more illustration than this of the unpredictability of stock markets?
I’m not clairvoyant, but I do have 25+ years’ experience watching markets rise and fall in a somewhat random and definitely unpredictable timeline. For all of us mere mortals I think our best approach to investing is decide how much risk we can take and sleep comfortably—most of us put 60%-80% in equities— and allow the long term growth of markets to help us increase our wealth.
I’ve seen it work for over 25 years and I don’t expect it to stop anytime soon. Patience is a virtue when it comes to realizing gains from investments we cannot control. Clearly the stock market is just such an investment.
Hopefully we can take some comfort in the fact the major market indices have grown over 150% since the last really low point in early 2009. So if we stay the course we will be rewarded. We allocate a portion to stocks, a portion to bonds, a portion to big companies, a portion to small, a portion to the US, a portion to the rest of the world.
We rebalance regularly, selling winners and buying losers. My goal and my role is to make sure you don’t outlive your money, and you can enjoy the fruits of your working years.