Post by: Valley Financial Group
We hope you are doing well. It’s that time of the year again:
• for IRS worriers: tax season
• for basketball enthusiasts: March Madness
• for those of you that are done with this horrible winter: Spring!
Also, it is the end of the 1st quarter and time for you to receive your quarterly financial statement. For many of us, the financial markets for the first three months of 2018 have seemed maddening. Here are some of the interesting or “oh no!” topics you have may have read about, watched on the news, or even discussed with family and friends.
1. North Korea
2. Rising interest rates
4. Oval Office adultery
We have received many calls and emails from our clients concerned that all of these news items/problems/whatever you want to call them are going to have a lasting negative impact on their portfolios, which could potentially blow up their retirement (no pun attended).
Well, let’s take a look.
If you close your eyes and think about what is going on in the world, ask yourself these questions:
1. Is this the first conflict between North Korea and The United States?
The answer is no. There was the Korean War and since 1985 many failed Nuclear Treaties. https://www.weforum.org/agenda/2017/12/north-korea-united-states-a-history/
2. Has the Fed ever raised interest rates?
The answer is yes. In the 1950s, The Central Bank began to finally raise rates slowly after the Great Depression and they raised rates 21 times in the 1970s. https://www.theguardian.com/business/2018/feb/10/interest-rate-rise-federal-reserve-growth- crash-richard-sylla
3. Has the United States ever been in a trade war or imposed tariffs?
The answer is yes. There have been many tariffs through the years. For History Buffs, the 1930’s Smoot-Hawley Tariff Act comes to mind. Also, President Bush in 2002 tried to implemented his own tariffs on steel to try to protect American Companies.
4. Has a president ever had an extra-marital affair?
Unfortunately, yes. According to the New York Times, this has happened 14 times.
There is a famous quote by Mark Twain, “History doesn’t repeat itself but it sure does rhyme.”
How does this relate to financial markets?
The economy, the financial markets, and most likely your own portfolio have been through similar situations and unstable environments before. This noise can have a short-term impact on your portfolio, but it will have a major long-term impact on your portfolio if you allow it to change your investment behavior.
Consider this stat from JP Morgan:
From 1998 – 2017, the S&P 500 returned 7.2%, while the average investor had a return of 2.6%.
Why the discrepancy in return? Emotional reactions to the Noise and Headline Risk are the likely culprit. Markets are noisy and largely unpredictable, and the only way to operate successfully is to avoid being fooled by the messiness. The way we do that at Valley Financial Group is to build globally diversified portfolios that contain both fixed income and equities. This allows us to advise you to control your emotions during periods of volatility in the markets.
We are not sure if the markets are going up or down tomorrow or the next day and we definitely do not know what is going to come out of the Oval Office, but we do know according to the behavioral finance expert, C. Thomas Howard, 55/65/75: the stock market produces a positive return in 55% of days, 65% of months, and 75% of years. Our most successful clients tend to measure their portfolios in years, not days, and months.
The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. Performance of an index is not illustrative of any particular investment and performance figures quoted are historical. It is not possible to invest directly in an index.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the readers as research or investment advice nor should it be construed as a recommendation to hold, purchase or sell a security. Past performance is no guarantee of future results.
Investments will fluctuate and when redeemed may be worth more or less than when originally invested.