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Welcome change
Change is one of the most difficult tasks people face every day because it can bring about the dreaded “unknowns.” However, if you plan ahead and focus on the opportunities that change can bring instead of the obstacles, it will reduce the anxiety you may experience and perhaps open your eyes to seeing the world differently.
Change comes in all shapes and sizes. Whether it’s a personal change or a career change, preparing yourself and your family for what lies ahead will pay off immensely in the end. After months of anticipation, my wife, Ivy, and I experienced one of life’s major shifts. In May, we welcomed our first child, John, to our family. Closely following that life-changing event, another big development brought Daniel Allen aboard as our newest advisor. New guy at the office and a new baby at home. Both situations required a lot of planning and preparation, not to mention paperwork, which was overwhelming and stressful at times. However, each in its own way has been incredibly rewarding. The key is to relax a little, take deep breaths and enjoy these types of changes. And remember, change is good for several reasons.
- Change makes you smarter. If things never changed, you would never learn anything new. Every time you learn a new skill, you are becoming smarter than you were the day before.
- Change makes us grow. If we weren’t open to change, we would never push ourselves outside our comfort zone and progress as individuals and professionals.
- Change gives us hope and reminds us that anything is possible.
The key with any kind of change is to focus on "progress, not perfection." As we get the New Year started, let's welcome change with open arms and positivity. |
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2015 Market Review
With the federal government ending its near zero interest rate policy, a debt crisis in Europe (see Greece), slowing growth in China, falling oil prices and plenty of political drama, 2015 was anything but boring. Our theme for the market during 2015 was “violently flat.”
For instance, the S&P 500 had roughly 72 trading days with a gain or loss of at least 1% or more (with only 252 trading days in the year, that is 29% or basically one out of every four days). That is up from 38 trading days, or 15%, in 2014.
Along with the volatility, the indexes provided negative to flat returns in 2015. The Dow Jones, S&P 500 and Russell 2000 (small cap index) all struggled through 2015 and were down -2.2%, -0.7% and -5.7% respectively. Last year felt like a true roller coaster ride – zigzagging up and down – only to find yourself back where you started.
However, no matter the environment, there are several principles that, if followed, have proven to provide opportunities for investors to succeed: know your goals, be disciplined and stay committed to your long-term plan.
Quick Review of our Market Outlook penned back in January 2015:
1. Strengthening dollar
- We expected the dollar to increase throughout 2015, and it did. In fact, between mid-2014 and mid-2015 the dollar gained more than 20% versus its major trading partners – matching the largest 12-month increase in the value of the dollar since we went off the gold standard in the early 1970s.
2. Flattening of the yield curve
- The market confirmed our belief that the yield curve would flatten over 2015. As expected, the Federal Reserve decided to raise short-term interest rates. In turn, this caused the shorter end of the yield curve (which is mainly influenced by Fed behavior) to rise.
- On the other hand, the longer end of the yield curve held steady as investors sought safe-haven investments - providing the highest yield.
3. Stock market volatility will pick up
- As we mentioned a year ago, the markets had been eerily calm the past couple of years, and volatility was well below historic norms. We think everyone would agree that volatility came back with a vengeance in 2015.
4. Inflation will remain relatively low
- Our inflation analysis for 2015 turned out to be accurate. In fact, at the end of November, Headline CPI (the preferred measure of inflation by the federal government) was only 0.4% year over year. The continued drop in energy prices played a major role in the lack of inflation pressures, but wage growth was minimal as well. Even the Core CPI metric, which strips out food and energy prices, only increased by 2% year over year, well below the 50-year average of 4.1%.
While it’s great we got the big picture right, it’s also important to reflect on what we got wrong in 2015.
Oil. It blindsided us and the overall market. We underestimated the severity and length of the decline in the energy patch as oil continued its slide in 2015 and dropped another 30% (following a 45% decline in 2014).
We did not foresee OPEC or domestic drillers increasing their production while prices continued their free fall. Economics 101: supply outpaced demand.
2016 Market Outlook:
We expect 2016 to be a year in “transition” as oil prices likely find a bottom, the dollar settles into a more historical range, and central bankers around the world continue to execute different monetary policies. We believe that the drop in oil prices will continue to give consumers more money to spend; an increase in short-term interest rates will help financial and insurance companies; and the health care and tech sectors will benefit from continued growth and innovation.
Although we feel we are in the latter half of the current business cycle and are poised for a continued low-growth and low-inflation environment, we do not expect a large downturn (in the -20% range) on the year. It’s important to remember that bear markets are generally caused by recessions, and we do not foresee that occurring in 2016. We will make strategic changes to both our bond and stock strategies in the first quarter to take advantage of our outlook.
The key is to keep your long-term goals in mind, stay disciplined and believe in the process. We wish you a healthy and prosperous New Year, and we look forward to continuing to guide you going forward.
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Disclaimer
This communication and its content are for informational and educational purposes only and should not be used as the basis for any investment decision. The information contained herein is based on publicly available sources believed to be reliable but not a representation, expressed or implied, as to its accuracy, completeness or correctness.
No information available through this communication is intended or should be construed as any advice, recommendation or endorsement from us as to any legal, tax, investment or other matters, nor shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained in this communication constitutes investment advice or offers any opinion with respect to the suitability of any security, and has no regard to the specific investment objectives, financial situation and particular needs of any specific recipient.
This email represents the opinion of Red Door Wealth Management and is for informational purposes only. It is not a recommendation nor is it intended to be construed as tax or legal advice by the recipient. Past review of investments are no guarantee of future results.
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