In November, markets deviated significantly. US small cap stocks rallied strongly along with US large caps. To a lesser extent, bonds and international stocks also rose. Over the course of the year, all four indexes have positive returns, with many stocks having a great year.
Investor Thanksgiving
Happy Holidays! We hope you had a wonderful Thanksgiving and are now looking forward to the joys of Christmas and the New Year. As investors, we have much to be grateful for. Here is a quick list that comes to mind:
- Current Market Environment – The economy remains strong and growing, despite many recession forecasts over the past 2 years. The Federal Reserve has started to reduce interest rates because inflation has cooled, which should support future growth. The outcome of the elections is known and we will have a peaceful transfer of power. All of these factors have contributed to rising markets this year.
- Diversification – It’s never been easier to buy a wide array of investments based on company size, economic sector, country, or fundamentals like earnings or revenue growth. Diversification reduces unnecessary risks and helps improve the chances for positive returns over time.
- Exchange Traded Funds – ETFs are currently the most popular financial products available and continue to attract inflows of money every year. They have low ongoing expenses and are liquid and tradeable throughout normal market hours. In addition, there is full transparency into the investments inside the fund, so investors always know what they own. Typically, they also minimize taxable distributions, which gives investors higher levels of control over when they realize gains and pay applicable taxes.
- Tax-Advantaged Accounts – While it might be a stretch to say that we’re thankful for the IRS, the tax code does give investors plentiful options when saving for retirement. Knowing your current tax situation gives us the ability to analyze which type of account makes the most sense to fund.
- Time – On any given day, the chance of the stock market being up or down is roughly equivalent to flipping a coin. But as time goes on, the probability of making money in stocks goes way up. The following graph from JP Morgan shows the range of outcomes for stocks (green), bonds (blue), and a balanced portfolio (gray) performance over time.
Over one year, you can see that stocks can be tremendously volatile, down as much as 37%. But over 5, 10, and 20-year rolling periods, stocks have generated attractive returns, while the worst case scenarios are much less severe. When investing is a long-term activity, it not only benefits us, but the generations that follow.
As your advisor, we are tremendously thankful for the opportunity to work with you. If you would like to discuss any of these benefits further, please let us know.
