Q1 2017 Market Recap

The first quarter of 2017 is over. The talking heads on TV have been calling for a drop in the stock market for the past five years. And yet it keeps chugging along.

The 10-year US treasury spiked from a low of 1.3% last July to 2.6% this year, on the anticipation of Trump’s tax cuts and infrastructure spending. It’s since fallen to 2.3%. This decline is notable since it occurred AFTER the Federal Reserve actually raised short-term interest rates last month.

While it is widely believed that interest rates (and also mortgage rates) are heading higher over the long term, the rate of increase is likely to be extremely slow.

Compared to Germany and Japan, who’s 10 year bonds yield an unremarkable 0.3% and 0.07% respectively, US yields are significantly higher. Against this global backdrop, demand for higher yields is strong which will keep US interest rates from rising too fast. I expect it’ll be at least 2022 before we see the 10-year treasury at 5%.

Despite this slow pace, higher interest rates are coming.

Bond prices are inversely proportional to interest rates, which means prices fall when interest rates rise. To help combat this decline to our bond allocations, we recently added some floating-rate bonds to our long-term portfolios. These bonds will rise along with rising interest rates.

The two main drivers of the economy, businesses and consumers look like they are finally turning a corner.

In Q4 2016, corporate profits jumped a remarkable 22% from the prior year. This jump is likely to kick-start corporate spending, something that has been missing from the economic recovery since the Great Recession ended eight years ago. As a result, we are likely to see hundreds of millions (if not billions) of dollars in spending, as businesses invest in themselves. This will lead to increases in productivity, helping lower costs and spurring job creation.

Also, the consumer sentiment index, a gauge of the consumer’s expectations regarding the economy, is at it’s highest rate since 2004. This usually corresponds to an increase in consumer spending.

Unemployment is at the lowest point in a decade, and we’re finally seeing signs of wage growth as well.

Coupled with low inflation and low interest rates, this rise in income should help boost economic growth beyond the lukewarm 1-2% we’ve seen for the past several years.

As the economy continues to improve and with no signs of a recession on the horizon, I expect the stock market to continue to perform well. While some of the future growth may already be baked into today’s prices, the risk of a major stock market decline is low.

By major, I mean a 20% or more drop. Drops of 5-10% occur pretty much every year and should to be expected.

Of course, our political situation remains a wild card. But as I’ve explained before, we don’t make investment decisions based on political events.

As of April 9th, nearly all asset classes are positive year-to-date:

S&P 500 ended up 5.7%
Mid-cap stocks up 5.6%
Small-cap stocks 3.9%
US Real Estate 1.9%
Foreign Real Estate 5.1%
Developed Market Stocks 7.2%
Emerging Market Stocks 12.8%
US Bonds 0.8%
Emerging Market Bonds 3.7%
High Yield Bonds 9.6%
Floating-Rate Bonds -0.7%
Gold 9%
Gold Mining Stocks 9.7%
Commodities -0.1%

The only exceptions were commodities and floating-rate bonds with a minuscule loss.

After five years of subpar performance, Emerging Markets were the best performers. For various reasons, which I’ll explain in the near future, this trend is likely to continue. We’ll be modifying our portfolios slightly to benefit from this trend.

Tax season is almost over. If you’re planning on making 2016 contributions to your IRA, you have until the tax-filing deadline, which is April 18th this year.

Wish you all a Happy Easter!


P.S: If you’d like to discuss your investment performance, or you’d like a complimentary portfolio review, use this contact form and we’ll schedule a time to talk.


Investment Lessons of 2016

2016 was a wild ride!

What if, at the start of the year, you had a crystal ball and you knew January and February would see severe stock market declines leading to the worst start of any year, Britain would shock the financial markets by voting to exit the European Union, and Donald Trump would be elected President?

Would you have changed anything? Would you have sold all your stocks for the safety of bonds?

If you had, you would have traded some spectacular gains in the stock market for losses in the bond market!

After the decline in January and February, all asset classes had turned positive by May.

But this didn’t last. By late November, some safe-haven asset classes like Bonds and Gold tumbled while others like Stocks soared.

However, by the end of December, pretty much everything turned positive again.

S&P 500 ended up 12%

Mid-cap stocks up 11.2%

Small-cap stocks 18.4%

US Bonds 2.5%

Emerging Market Bonds 16.7%

High Yield Bonds 29.6%

US Real Estate 8.6%

Foreign Real Estate 0.32%

Developed Market Stocks 2.7%

Emerging Market Stocks 10.7%

Gold 8.3%

Gold Mining Stocks 48%

Commodities 17%

We use a Value and Quality index fund for our exposure to US Large-cap stocks and this year it had a terrific return of 21.9%. Value and Quality doesn’t always outperform and market-cap weighted index (such as SPY), but when it does, the returns are very satisfying.

(As per my compliance officer, I must mention here that past performance does not guarantee future returns, and investor returns may be lower due to transaction costs and fees, as well as timing of deposits and withdrawals).

Overall, all of our equity-based globally diversified portfolios returned between 9.9% and 13% (before the impact of fees) in 2016.

The worst performer was the Municipal Bond portfolio, returning a modest 2.2% (again, before fees). This was unexpected, due to the sudden spike in interest rates. However, Municipal Bonds are currently an extremely good value, and I believe they will have a much better performance in 2017 even if interest rates increase slightly.

The biggest takeaway from 2016 is the behavior and returns of financial markets are impossible to predict.

Rather than focusing on market timing, you’re much better off sticking to your long-term investment strategy and process. If you don’t have a process, you’re  more likely to be swayed by your emotions when confronted with the roller-coaster ride of the markets.

As for 2017, it’s hard to predict what’s in store for us.

But you can be sure that it will be just as volatile and equally unexpected. So instead of worrying about it,  we’ll continue doing what we’re doing and reaping the rewards of a long-term process-driven investment strategy.

Wish you all a very Happy and Prosperous New Year!


P.S: If you’d like to discuss your investment performance, or you’d like a complimentary portfolio review, just reply to this email and we’ll schedule a time to talk.


What’s Next For Trump?

What an eventful November it’s been!

The month started out with a shock, as Donald Trump was elected President. None of the polls had him winning, and I doubt anyone seriously believed he would win.

It’s possible Trump himself was shocked at his own victory.

As we saw with Brexit earlier this year, the popular (logical/obvious?) vote was not the outcome we got.

On the eve of the election, and also leading into the results, several of you reached out asking if your portfolios were well-positioned for the election outcome. And as I mentioned my last post, we let process dictate our investment strategy, not politics.

Indeed, if you had let your emotions dictate your investment decisions, you were in for another rude shock.

Instead of dropping after the elections, as was widely expected, the US stock market has been on fire. In fact, all the major US stock indices reached record new highs earlier this week – a feat not seen in 16 years.

The confusion was compounded by a swift drop in bond prices, and a large spike in global yields.

Truly, stock markets exist to make us look foolish!

It seems the stock market thinks Trump will be good for the economy.

While he ran on a somewhat distasteful platform of racial, gender-based and economic divide, a few of his ideas seem popular with investors.

Trump is planning to lower corporate taxes, and has announced a tax holiday on $2.5 Trillion of cash held abroad by US companies. Typically, this money would be taxed at a high rate if brought back in to the US, but Trump has declared a one time tax of 10%.

According to one highly optimistic analysis, this money could generate as many as 25 million jobs!

Whether or not that is possible is a different question, but more money for companies will reflect positively in their share price.

He’s also promised to simplify the tax code for individuals and from a cursory glance at his new tax tables, it appears he wants to remove the marriage penalty too.

Trump wants to boost infrastructure spending. Our infrastructure is in sore need of updating and maintenance. This spending will also help boost the economy.

He’s also in favor of fewer regulations, which typically help improve economic activity. (This increased economic activity sometimes comes at the expense of human and environmental health, but that’s a different discussion).

So there are a few valid reasons for investors to rejoice.

However is not all rosy.

All this infrastructure will need to be funded with debt. And there’s concern the US deficit will spiral out of control – this has spooked the bond market causing bond yields to jump.

Yields on the 10 year Treasury jumped from 1.85% to 2.3% in the past few weeks. Bad news if you’re in the market for a mortgage, since rates are tied to the 10 year.

It’s even worse for long term bonds, like the 30 year. The yield jumped from 2.6% to 3%.

When rates rise, bonds prices fall.

The 20 year bond dropped 5.7% over 2 days last week – the biggest 2 day drop in it’s history. And if you’re retired and relying on government bond funds, the decline since July has wiped out several years worth of income.

Meanwhile, these higher rates have strengthened the US dollar, which is bad for companies that engage in export, as well as for Gold, Gold mining stocks.

Trump has also threatened free trade agreements which has caused emerging market stocks to decline.

Overall, it’s a mixed bag.

Luckily, our stock portfolios have held up quite well. They’re down slightly from the peak in summer, but still doing quite well.

Along with the rest of the bond market, our close-end municipal bond funds have taken a bit of beating. But they are still positive for the year.

Now is actually a great time to allocate more funds to this strategy, seeing as the discounts on some of these funds are reaching nearly double digits – something we haven’t seen in nearly 2 years. These funds are especially useful to those in high tax brackets as their interest payments are tax-free.

Wish you all a very happy Thanksgiving!


P.S: If you’d like to discuss your investment performance, or you’d like a complimentary portfolio review, just send me an email and we’ll schedule a time to talk.


Happy Labor Day!

Summer is almost over.

Just two months ago the market was reeling from the effects of the Brexit.

Following the steep declines in January and February, it was enough to shake the confidence of many investors.

Hopefully you weren’t one of them. After a brief decline, the stock markets have since rallied strongly.

Stock markets will always be volatile – but panicking never helps.

Despite all the volatility over the past 12 months, those that stayed the course have seen their portfolios go up. At least they should have gone up if they had a globally well-diversified portfolio.

And even if your portfolio isn’t very diverse, it still should have gone up!

Just as we saw in May, every asset class is still positive for the year.

The US stock market (as measured by the S&P 500) is up 7.6% year-to-date. Small cap stocks are up 10.4%. International Stocks are up 2.2%, while Emerging Market stocks are up 12.7%.

US Intermediate bonds are up 5%, Corporate Bonds are up 10.6%, and Emerging Market Bonds are up nearly 12%.

US Real Estate Trusts were even better at 18%, with Foreign Real Estate Trusts coming in a respectable 12%.

Commodities, while down from the peak earlier this year, are still up 6.9%.

Gold is up 27%. And the biggest winner this year has continued to be Gold Mining stocks at 126%.

The mainstay of our portfolios, our Large Cap Value and Quality fund has also continued its outperformance against the S&P 500 this year, up a very impressive 18.5%.

As we saw last year, Quality and Value doesn’t always beat a simple market-cap weighted index fund (such as SPY), but when it does, it can work extremely well.

Our Municipal Bond Closed-End Fund Portfolio has also continued to be a top performer with a year-to-date return of 11%.

Year-to-date, all of our model portfolios are up between 11 and 13%.

(As per my compliance officer, I must mention that past performance does not guarantee future returns, and investor returns may be lower due to transaction costs and fees, as well as timing of deposits and withdrawals).

This is quite a surprise from what we expected at the beginning at the year. Which is why we place more emphasis on investment strategy and process, and less on the economy, our emotions, or our expectations for performance.

We also largely ignore what is happening politically.

Despite all the uproar surrounding our presidential candidates, changing your investment strategy based on your political beliefs is likely to do more harm than good.

Regardless of who gets elected, the markets are likely to find something to be upset about, and I expect a drop in the stock markets after the election.

For Hillary, it will be the threat of higher taxes. For Trump, it will be a candidate that likes to shoot from the hip, and alienate practically everybody.

But the markets will eventually find something they like about the new President.

For Hillary, it’ll likely be lower healthcare costs as she takes on Big Pharma.

For Trump, it’ll be the fact that he’s willing to offer companies a tax holiday on their cash that’s sitting abroad – this will result in about $2 Trillion coming back to the US – money that will work its way back into the economy.

Both candidates are likely to kick-start programs to revamp our aging infrastructure, something that is likely to boost the economy.

In either case, the market will rejoice. And, as is the case with most declines, it is likely to be short-lived, regardless of its magnitude.

Another thing I expect to happen in December is the Fed will finally raise the short term interest rates another 0.25%.

Last September, Fed Chairwoman, Janet Yellen, said that they were likely to raise interest rates 1% this year. So far this year we’ve seen zero rate hikes, and long term rates have actually declined a little.

But the Fed wants to try and raise the short term rates to at least 2%, so that when the next recession occurs, they have room to lower them.

At the rate they’re going, this might take a few more years to reach. Which is okay, since there isn’t any recession looming on the horizon.

I expect the economy will keep grinding higher for the next few years, just like it has been for the last five. And like the economy, our investments will likely slowly grind higher as well…

So, as usual, keep calm and carry on investing.

Wish you all a Happy Labor Day!


P.S: If you’d like to discuss your investment performance, or you’d like a complimentary portfolio review, contact me and we’ll schedule a time to talk.


Should You Worry About the Brexit?

By now, you probably heard of Britain’s decision to exit the European Union.
Financial experts and book-keepers all thought Britain would vote to remain, so the results came a shock.
Global markets dislike surprises and reacted accordingly.
The British pound dropped 10%, the largest move ever. European and Emerging markets dropped 6-8% and even the S&P500 was down nearly 4%.
Ironically, British markets (FTSE 100 Index) were down only 3%, presumably because the decline in the British Pound will make British exports cheaper, actually helping British companies in the near term.
Meanwhile, US Bonds held up and Gold popped 5% higher as investors sought safe haven assets.
As I mentioned last month, increased volatility is something that we’ve been expecting.
In the short-term, no one is really sure how exactly Britain will exit the European Union. It’s likely to take two years for this to unfold. And there’s a chance other members of the EU like France and Netherlands might want to exit if they think Britain can pull it off without a major recession.
The Federal Reserve has been looking for an excuse to raise interest rates for over a year now. In September they said they expected to raise interest rates four times this year. And now it seems highly unlikely we’ll see even one rate increase.
I think we might have an equal chance to follow the rest of Europe into negative interest rates.
Over the long term, none of this is likely to have any lasting effect.
Europe has survived two world wars and London remains the financial capital of the world.
If anything, we should heed Warren Buffett’s advice and “be fearful when others are greedy and greedy when others are fearful” and use this an opportunity to rebalance in to International and Emerging Market Stocks.
After nearly nine years in a bear market, they are due for a turn-around. I’m not making a prediction here but regular rebalancing in to undervalued asset classes is part of our investment process. And as I’ve said before, process is the most important (and most frequently overlooked) part of investing.
Even after this severe one-day drop, our portfolios are still positive for the year (although timing of deposits and fees may affect individual returns, and as my compliance officer insists I remind you, past returns are no guarantee of future performance).
But I’m confident the Brexit isn’t really anything to be overly concerned about.
Your investment accounts should contain a fair amount of Bonds, and a small amount of Gold, both of these will provide a ballast for your portfolios and help offset future volatility.
If there is one thing to be concerned about, it’s where to book your summer vacation this year.
The British Pound has declined to 35 year lows, and even the Euro is considerably lower, making it cheaper for Americans to travel to Europe. Take advantage of it.
If you have any questions or concerns about your investments, or retirement accounts, feel free to reach out.
Happy Investing,


All Asset Classes Turn Positive

Tax season is finally over!

Tax time is stressful for most people. It’s a tedious annoyance, that reminds us how much money we’re sending to Uncle Sam, our silent partner in all our profitable ventures.

Hopefully, you’ve finished filing your 2015 taxes and there were no unpleasant surprises. Only pleasant ones, like a bigger than expected tax refund.

One pleasant surprise in the markets is the revival of Commodities, and the continued performance of gold.

As I mentioned last month, I expect we’re in the beginning stages of a gold rally.  Gold is now up 21% for the year, and our Gold Miners ETF is up an incredible 88% year-to-date.

After five years of dismal losses, Commodities are finally positive, up 14%.

In fact, every single asset class is up for the year.

US Real Estate is up 3.8%
Int’l Real Estate is up 8.7%
Developed Market Stocks are up 0.5%
Emerging Market Stocks are up 6.4%
Bonds are up 3.3%
High-Yield Bonds are up 14%
S&P 500 is up 1.4%
Mid-cap stocks are up 0.8%
Small-cap stocks are up 2.7%

Our Large-cap Quality and Value index fund is continuing it’s outperformance this year with an 9.7% return so far this year. As we saw last year, Quality and Value doesn’t always beat a simple market-cap weighted index fund  (such as SPY), but when it does, it can work really well.

(As per my compliance officer, I must mention here that past performance does not guarantee future returns, and investor returns may be lower due to transaction costs and fees, as well as timing of deposits and withdrawals).

Our Municipal Bond Closed-End Fund Portfolio has also continued to be a top performer with a year-to-date return of 7%. This surprising performance, on top of last year’s 8.8% return, has undoubtedly been helped by the declining interest rates.

If interest rates turn higher, it will definitely hurt bonds. But whether or not this happens this year remains to be seen. (See here  and here for previous discussions).

If anything, there is a chance that we might see negative interest rates, as the US Federal Reserve follows the ECB and Bank of Japan in trying to fight deflation and stimulate inflation.

However, it’s uncertain that negative interest rates are the solution.

According to Jeffery Gundlach, the brilliant bond fund manager and founder of Doubleline Asset Mangement:

“There is mounting evidence that negative interest rates do the opposite of what the central bankers were hoping for. Negative interest rates are designed to fight deflation.

But they are the very definition of deflation: Your money is disappearing.

As an investor, you are going to have less money in the future than you have today with negative interest rates. That’s deflation!”

But it’s not like his opinion is going to change what the world’s central banks believe.

Given this current economic environment, I still think the market is going to remain extremely volatile this year.

The US stock market is in its 7th year rally,  it’s a little over-valued (especially compared to International and Emerging Markets) and probably due for another pull-back.

But we shouldn’t start panicking or worrying about the end of this bull market just yet.

Why not? What causes the end of a bull market?

Quite simply, it’s extreme levels of optimism.

And we’re no where near extreme levels of optimism yet.

According to a recent Gallup Poll, we’re at record low levels of stock market participation for mom-and-pop investors.

And according to a recent “Big Money” survey in Barron’s magazine, even professional investors are pessimistic about the 12-month returns of the stock market. In fact, Barron’s said the poll results were the least bullish in the survey’s 20-year history.

Older readers will recall the market was overvalued back in 1996, and it continued to rally for another 3+ years before finally turning down in 2000.

We’re still very, very far from the level of exuberance, or over-valuation, that we saw in 2000.

If you’ve been reading my prior writings, you know I’m a fan of staying calm and sticking to your investment process. In the long run, we never know when returns will show up, and trying to time the markets nearly always results in poor performance.

As Warren Buffett, the world’s most famous investor has said repeatedly, the real trick to investing is to value consistency over risk, get a few things right, and then to limit mistakes.

Buffett’s company, Berkshire Hathaway, recently held it’s annual shareholder meeting in Omaha, Nebraska. Most annual meetings are incredibly boring events, and ignored by most mom-and-pop investors. However, Berkshire’s annual meeting is legendary.

Each year, tens of thousands of shareholders and value-investing devotees descend on tiny Omaha (population: 400,000) to attend the annual shareholder meeting. When I attended in 2008, there were nearly 40,000 visitors. I couldn’t find a hotel room within a 75-mile radius and ended up sleeping on someone’s couch, along with their cat.

The reason it attracts such a large following is due to the folksy charm of Warren Buffet, and the incredible wit and wisdom of his second-in-command, Charlie Munger. Together they hold court for a full day, and just take questions from the audience. Most of the questions are related to general investing, and macro-economic events and are both enlightening and entertaining.

This year, for the first time ever, most of it was streamed live on Yahoo! Finance.

If you have any interest in learning more about investing I highly recommend you watch the recording :


And finally, there’s new research that shows that people who put off retirement live longer! You can read more at the WSJ.

If you have any questions about your ability to retire, or whether your investments are appropriate for you, feel free to reach out to me.

Happy Investing,



Gold Shines in 2016

Wow! It’s been a roller-coaster ride of a first quarter!

After dropping like a stack of bricks during the first six weeks of the year, the market staged an incredible comeback during the last six.

The S&P 500 rallied 14% since it’s February lows, ending the quarter up 1.5% for the year. This is probably the strongest rally I can remember (outside of the tech rally in 1999).

Luckily our value and quality-based strategy did even better, outperformed the market by about 5 percentage points. After last year’s performance, where mostly low-quality, unprofitable company stocks went up, and value/quality-strategies performed miserably, it’s good to see a validation of our investment strategy. (And of course, for compliance reasons I have to state that past performance is no guarantee of future returns).

The biggest gains came from Gold, and Gold Mining stocks, checking in at 15% and 45% respectively. As I explained last month, in a Negative Interest Rate Environment, gold is expected to do well.

And while interest rates in the US are not yet negative, if they do continue to decline, we can expect this gold rally to continue.

The Federal Reserve, which sets the short-term rates, has continually flip-flopped on it’s stance regarding interest rates. While stating late last year that they were going to raise the rates steadily, and continually for the next few years, they’ve since reversed their position.

Personally, I expect rates to stay at this rate for quite some time.

Rates in Europe are already negative.

Negative interest rates act as an unfair tax on savers, both at the individual level as well at the corporate level.

It especially hurts companies which need access to large amounts of capital, such as insurance companies who need liquidity to pay out claims – companies like German insurance giant, Munich Re.

According to a recent Bloomberg article, faced with the option of paying -0.4% to keep cash in the bank, Munich Re, has  instead decided to store $10 million euros in cash, in its vaults. This is on top of the 300,000 ounces of gold it already stores, currently valued at $366 million.

If global interest rates continue to decline into negative territory, more and more companies will start holding more of their cash in the form of gold. This can really start to move the needle on gold purchases.

While it’s hard to predict the movement of asset prices, but I believe we’re seeing the early stages of a gold rally.

All of my client portfolios have a small portion allocated to gold and gold mining stocks. While this diversification in alternative assets has acted as a damper on returns in the past few years, it’s worked out excellently this quarter.

And if the US joins the negative-interest rate club, it will continue to perform well.

But please don’t take this is to mean you should bet the farm on gold!

A well-diversified portfolio both protects against catastrophic losses and provides decent returns over the long-term.

Concentrated bets into any one stock or one sector may be how fortunes are made, but much more often, it is how fortunes are lost.

On another note, tax season is in full swing.

Tax-related fraud is on the rise, with thieves rummaging through mail looking for tax refunds to steal.

One way to avoid this is by having your refund directly deposited into your account – but make sure you have the correct routing number and account on your form! And you can keep tabs on your refund by using the IRS’s Where’s my Refund? page.

If you haven’t contributed to an IRA yet, it’s still not too late. For those of you who make too much money to contribute to a Roth IRA, there may be a backdoor method to contribute, providing you do not currently have a Traditional IRA. If you do have a Traditional IRA, it’s probably not worth the hassle.

If you have questions on your eligibility, feel free to contact me.

Happy Investing!



Economics Explained in Rap Format

I came across this amazing rap video which talks about boom and bust cycles, effects of low interest rates and government spending. Basically everything you ever wanted to know about the economy! So whether you believe in Austrian economics, or you’re a Keynesian, you’ll enjoy this video.


Have We Turned A Corner?

Previously, (in Should you Worry About Market Declines, and Staying the Course), I advised readers to ignore the news media and recent stock market declines and stick to their long-term investing goals.

This was in response to several client calls worrying about an impending market collapse. After the volatility of the last six months of 2015, and the near 10% losses in the first 6 weeks of 2016, it’s easy to get spooked and yearn for the safety of the sidelines.

But then, as often happens, the markets turned right around and rallied for the past 2 weeks, with nearly all asset classes coming close to erasing the losses for the year.

I guess the stock market really enjoyed the political circus that has been playing out between Donald Trump and all the other 32 presidential candidates!

The strongest gains came from the worst performers of the last year – Emerging Markets, Gold and Oil Companies.

The best performer was Gold (up 9% last week, and 18% for the year), and Gold Mining Stocks (up 5.5% for the week and 35% for the year), but this comes as no surprise.

After several years in a Zero Interest-Rate Environment (ZIRP), we’re now close to a Negative Interest Rate Environment (NIRP). And in negative interest rate environments, gold can be expected to do well.

A third of all global debt (nine trillion dollars worth!) has been issued with a negative yield. This includes the Eurozone, Scandinavian countries, and most recently Japan.

As I mentioned almost exactly a year ago today, the US is going to have a tough time raising interest rates when the yield on newly-issued global bonds is negative. (As a side note, in that letter I also predicted that intermediate-term Municipal Bonds would be the biggest beneficiary – a scenario that actually came true with Munies being one of the best performing asset classes last year!)

Sure enough, as predicted, even though the Federal Reserve increased the short-term rates, the yield on long-term US treasuries declined, and even mortgage rates have dropped to levels not seen since late-2012.

Incidentally, if you’re in a 30-year mortgage with an interest rate that’s over 3.75%, now is a great time to refinance.

Oil prices seem to have stabilized, and may have reached a bottom around $30/barrel, leading to a rally in Oil Companies which were up 9% last week and nearly 4% for the year.

And after 3 years of double-digit losses, Emerging Markets finally seemed to have turned a corner. They were up 9% last week, and up 1.5% year-to-date.

So does this mean the worst is behind us, and its smooth sailing from here?

I doubt it.

I still think we’re going to see a lot of volatility this year, with major declines followed by massive rallies.
But it doesn’t make sense to sell everything and sit on the sidelines.

After all, you don’t earn interest or dividends when you’re on the sidelines. And dividends are responsible for nearly half of your long-term investment returns.

So, as usual, just keep calm and stay invested!


Staying The Course


The market’s been quite volatile over the past several months. The talking heads on TV have been proclaiming it’s a bear market, with 2008-esq declines on the horizon.

In this environment, it’s easy to lose your nerve and consider bailing on your investment strategy, or at least curtailing your monthly investment contributions to your retirement accounts.

But the truth is hard to swallow – volatility is the just price you pay for investing in the stock market.

While it’s a rollercoaster ride, especially in terms of emotions, historically you would have earned 8-11% in a well-diversified portfolio over long periods of time. And by long periods we are talking more than 5 years. Not just a couple of months, or even a couple of years.

As I mentioned in the last post, I strongly recommend you stick with the long-term strategy you’ve decided upon, even if the next few months or years are volatile.

During the accumulation phase, your investment process consists of making periodic contributions that are invested into a sound strategy. Even the soundest strategies will not always seem that way, with long periods of drawdowns and losses. If you stop your contributions, you are breaking the process. This rarely leads to a better outcome.

Here’s a snippet from an interesting article I just read today:
…From more than 40 years of providing investment counsel to corporations, endowments and individual investors, I’ve learned that one of the keys to successful investing is to avoid the tendency to “catastrophize”—envisioning only the worst possible scenario.

To do that, it helps to know the history of market returns. Consider the following examples:

  • From 1973 through 1974, the S&P 500 Index lost a total of 37%. Over the next five years, it returned almost 15% per year. And over 25 years, it returned more than 17% per year.
  • From April 2000 through February 2003, the S&P 500 Index lost an even greater total—more than 41%. Then, from March 2003 through October 2007, the index returned more than 100%, providing an annualized return of more than 16%.
  • From November 2007 through February 2009, the S&P 500 Index lost a still-greater total— more than 46%. Then, from March 2009 through November 2015, the index returned 227%, or more than 19% per year.

source: Reality Check For Investors by Larry Swedroe


 If you are uncomfortable with stock market volatility, your only other options are to invest in bonds, which will yield substantially lower returns than the stock market, or bank CD’s which basically guarantee you lose 1% to inflation every year.

But if you can hang in there, you will be rewarded with the juicy long-term market returns.

Pulling out and sitting in cash until you are comfortable with the volatility is a losing strategy. You cannot predict when you get positive or negative returns, and trying to time your entries and exits leads to missing out major returns.

If this volatility is making you lose sleep at night, maybe it’s time to adjust your asset allocation. Adding some more bonds, while lowering your long-term returns, will reduce the volatility and prevent you from making catastrophic mistakes.

What are catastrophic mistakes?

Selling out of your long-term holdings due to short-term volatlity definitely fits the bill.

Keep calm and just carrying on investing!