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Happy New Year from Charles Stephen!

Jan 13, 2016

Happy New Year from Charles Stephen!

Current Events

You heard us at the end of 2015 discuss that 2016 would continue to have volatility; we simply did not expect that volatility to happen over the first four trading days of the year! Yesterday’s 7% plunge in China triggered a market wide halt for the second time this week. The plunge was made worse by China’s central bank cutting it’s currency reference rate for the 8th straight day. The move sent financial markets into turmoil, just as it did last summer. If you recall July – September, the U.S. market dropped 12%, but made a come back by year end.


Staying Invested

When the news reports about volatility, recessions, depressions and other fear-inducing financial news, your first instinct is to pull out money and protect your assets. As financial advisors, we want to help our clients make rational decisions about their investments while sticking to a long-term plan.

2015 Market Performance

Coming off a tough year in 2014, 2015 didn’t do investors any favors.  The best performing asset classes were essentially flat to down and the worst performing asset class, commodities, was down 24.66%. Given little to work with, virtually any diversified portfolio construction approach provided minimal results. The chart below shows asset class returns by year from best to worst. You will notice in 2014 real estate investment trusts (REITs), Large Cap stocks, fixed income, asset allocation were the only positive asset classes, for the year. Looking at 2015, only two asset classes were positive for the year – REITs and Large Cap stocks. While 2014 and 2015 were frustrating for investors, please notice the far right column of the chart showing the annualized returns of asset classes from 2000 to 2015. Keep in mind when reviewing these numbers this includes 2000 and 2008. What you will notice is that every single asset class was positive over those 15 years on annualized basis. This continues to illustrate belief in a fundamental long-term, asset allocation approach to investing.

S&P 500 Price Index

2015 was a volatile year for the S&P 500 (the Index that tracks 500 of the largest U.S. stocks most widely reported on media outlets). The chart below shows the highs and lows from 1997 to the end of last year. You may have heard us discuss cyclical markets and how corrections are a normal part of market cycles. You will notice at the end of the chart that 2015 gave us that correction with a very sharp rebound! An emotional investor may have liquidated during the correction and by doing so would have potentially missed the rebound. As your advisor our job is to help you avoid emotional investment decisions.


The chart to the right tracks the S&P 500 in its highs and lows from year to year. The red numbers represent the lowest points in S&P 500. You will notice in 2002 and in 2008 the lows were significantly lower than where the market ended up. We show you this to illustrate that every year there are market highs and lows.

Composite Declines from All-Time Highs

While it seems we are in the middle of a major market retreat and volatility is nerve-wracking, emotional and unpleasant, it does happen and will continue to happen. Since 1929 there have been 10 significant declines from all time highs. The average bear market is a -45% total return decline from a high and lasts 25 months. The average bull-run is 151% total return lasting 53 months.(1) Please be aware that the factors that are pressuring the U.S. markets are global (external) in nature as opposed to the internal factors that affected us in 2008.

Click here for an article from one of our strategist’s (New Frontier) titled ‘Staying Invested When Volatility Spikes’. This is another article that will be beneficial to read about volatility and returns after large volatility spikes.

Moving Forward for 2016

For most of our clients and their accounts we do not see the need for changes at this time. However, you know we continually research the market and will make changes if necessary. If you feel you want to make a change or want to discuss your portfolio, please do not hesitate to call and make an appointment.  Also, please look for additional articles and emails from us.

Thank you for your continued trust from the first names in finance, Charles Stephen. Have a great 2016!