As *Jeremy Siegel says, “There is no way to sugarcoat the beginning of this year”. As you may be aware from all the headlines, the major culprits for some time, have been the economic conditions in China, along with the unprecedented drop in oil prices. Bejing continues to be overly active in efforts to control their economic conditions from the top. Even the circuit breakers they recently put on the top and bottom of their daily stock price movements did more damage than good.
Economic conditions in our country, on the other hand, look reasonably well for 2016. GDP growth is expected to end up around 2.7%, whereas 2015 came in at 2.5%. Unemployment measures point to near full employment with participation rates increasing slightly. The position of the monetary policy makers indicates they will continue to support the expansion assuming that the recent progress in economic conditions will continue.
Housing is also expected to continue to improve during the year and oil prices should bounce back a little bit as well.
The stock market has had a fairly long bull period, which points to continued volatility and modest gains for the year ahead. Over the longer term we still expect foreign stocks to outperform domestic stocks, and emerging markets doing even better, though neither have done as well recently.
It’s only natural to focus on the most recent year’s underperformance in just about all asset classes, as well as the rough start to this year. Downside volatility always begs the question, “Should I be making any changes with my investments?”
We believe our portfolios are well positioned to generate solid returns over our five-year horizon, but we think it is prudent to be prepared for potentially increased market volatility and downside risk (as well as positive returns) over the shorter-term. We believe the key to successful investing going forward, is to maintain a healthy patience, perspective, and the discipline necessary for long-term investment and financial success.
The portfolios we have designed for you are put together to give each of you the best chance of decent returns over the long term.
We are constantly reviewing the allocations in your portfolios as well as each individual investment manager within the allocations. During these periods of unfavorable performance it is most important that your allocations fit your risk tolerance needs and that you then stay the course as prudence dictates.
Please don’t hesitate to call us to discuss your personal situation and any specific concerns you may have.
Max W. Smith, CFP®, CIMA® and Kent Forsey, CFP®
*Renowned economist and Professor of Finance at Wharton