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!
Nirav
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.