“If you torture the numbers long enough, they’ll admit to anything.”
Well – it’s been a whole month since we recapped the economic and market activity, and not much has really changed in the big picture. Yes, stocks have pulled back again for the moment. Since it reached it’s high on September 20th, the S&P 500 has retreated roughly 10% for the second time this year. And daily volatility – both up and down – continues. In fact, there hasn’t been a whole lot of positive activity in any investment arena this year. Let these stats from the 11/26 issue of the Wall Street Journal sink in for a moment:
“Stocks, bonds, and commodities are staging a rare simultaneous retreat. This would be the first year in 25 years where all three major investment categories were down for the calendar year.”
“90% of the 70 asset classes tracked by Deutsche Bank are negative for the year – the highest number since 1920.” (Last year, 97% of the categories were positive.)
And yet, despite these gloomy declarations, we see no panic in the streets. Declines in diversified portfolios are quite modest. People are going about their lives without much regard for the daily drama perpetuated by the financial media. This is a good thing. We’d like to believe that our constant drumbeats of remaining well diversified, letting portfolios work, and keeping a long-term perspective are a little bit responsible for investors excellent behavior over this year. Whether it’s true or not, we’re gratified that individual investors are not misbehaving and are staying the course.
No commentary would be complete without a healthy dose of perspective. So, here’s this month’s pearl of wisdom:
As we’ve noted numerous times before, the price we pay for long-term advances is temporary declines. The stuff you owned in 2017 that rewarded you with excellent results is the same stuff that’s down modestly so far in 2018. And while no one likes negative results, let’s put it in perspective: If you own a globally diversified mix of quality investment assets, you’d be hard pressed to find a 10-year period in history where you weren’t at least satisfied with your results. Sure, there are plenty of one-year periods where you were disappointed. But your time horizon isn’t one year. Every client has the same time horizon for their investments. Need a hint? It’s your life expectancy. You need your investments to create income and growth for you to harvest over the rest of your life (and perhaps the lives of your heirs as well). So, the question to ask yourself isn’t, “do I own the right stuff for the next week”? It’s “do I own the right stuff for my life expectancy?” (For men, average life expectancy is around 92; for women, 94.)
Let’s say your portfolio is made up of 60% global stocks and 40% bonds – a typical retirement portfolio today. Your year-to-date results are down perhaps -3% to -5%. Yuck. But the same portfolio has averaged gross returns a shade over 9% annually for the past ten years. And a little better than 6% over the past fifteen years. * Obviously, you can’t have the 10 or 15-year results without enduring all of the one-year results. Makes perfect sense, right? Thus endeth this month’s lesson.
Next month, we’ll be sharing a more in-depth year-end commentary. We’ll review the markets and economy from the past year in detail, and more importantly look forward to view what 2019 might have in store for us all. Until then, don’t hesitate to call us if we can answer any questions. That why we’re here.