2017, A great year for investors. What comes next?Submitted by LWM | Linden Wealth Management LLC on January 5th, 2018
A great year for investors. What comes next?
2017 was a phenomenal year for investors. Equities posted double-digit returns. Well above their historical average. The U.S. and global economies accelerate at their fastest pace since 2011. The new year kicks-in where 2017 left off. What does this mean for you? Should you adjust your investment approach?
A burning question has been: do higher valuations lead to corrections? The short answer is no. The Wall Street Journal points out that when the S&P500 has risen 19% or more in a year, it is up 68% of the time the following year. The average return has been 8%. Past performance is never a guarantee of future returns but the outlook is promising. Especially when you factor in improving fundamentals and tax-reform.
Should I change my investment behavior? That depends on your approach. Investment decisions shouldn't be based on the latest news or recent performance. A good year in the market shouldn't influence your saving or spending rates. Those should be dictated by goals and objectives. Good years can be followed by bad and vice versa. It's better to stick with a long-term investment plan.
Why focus on asset allocation? A proper allocation balances risk and reward. It aligns investments with long-term goals and risk-tolerances. A road-map for moving forward. Instead of reacting to the latest news cycle you'll be following a long-term plan based on an appropriate asset allocation. This reduces speculative behavior that can undermine returns.
Why own international stocks? The global economy is improving. Foreign stocks trade at cheaper valuations than the U.S. We have long advocated a core allocation to developed and emerging markets. This reduces home bias or dependence on the U.S. market. A core holding in foreign stocks improves diversification, potentially raising your risk-adjusted returns.
2018 is off to a fast start. It's a reminder that large moves can happen quickly. At some point we'll experience a correction. When that time comes rely on your conservative assets like bonds to weather the storm and provide the capital to rebalance into risk assets that have underperformed. This disciplined framework balances the needs for growth and security with proper risk-management.
As a fiduciary and fee-only advisor, I don't make money by selling financial products. This means I'm free to recommend the strategies and investments that really make sense for couples and individuals, based on a clear understanding of where they're headed in life.
If an open conversation of this kind will be helpful to you, request an appointment now. Feel free to call out any specific questions you'd like me to address.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.