For the first time in nine calendar quarters, the U.S. investment markets delivered a negative overall return with the S&P 500 down at -0.8%. It was only a slight decline, but the decline reminds us that markets can and do go down from time to time. The MSCI emerging markets index was the only major index in the data table (see below) to have a positive return over the quarter.
Index Returns through March 2018 | YTD | 1 Mo. | 3 Mo. | 1 Yr | 3 Yrs | 5 Yrs |
| | | | | | | |
S&P 500 Index | -0.8% | -2.5% | -0.8% | 14.0% | 10.8% | 13.3% |
MSCI EAFE Index (net div.) | -1.5% | -1.8% | -1.5% | 14.8% | 5.6% | 6.5% |
MSCI Emerging Markets Index (net div.) | 1.4% | -1.9% | 1.4% | 24.9% | 8.8% | 5.0% |
S&P Global REIT Index (net div.) | -5.8% | 2.6% | -5.8% | -0.2% | 0.9% | 4.1% |
Bloomberg Barclays U.S. Aggregate Bond | -1.5% | 0.6% | -1.5% | 1.2% | 1.2% | 1.8% |
| | | | | | | |
100% MSCI All Country World Index (net div.) | -1.0% | -2.1% | -1.0% | 14.8% | 8.1% | 9.2% |
60% MSCI World & 40% Barclays US Agg Bond | -1.3% | -1.1% | -1.3% | 8.6% | 5.4% | 6.6% |
40% MSCI World & 60% Barclays US Agg Bond | -1.3% | -0.5% | -1.3% | 6.1% | 4.0% | 5.0% |
In the bond markets, rates on 10-year Treasury notes have continued to rise. This general rise in the bond markets has contributed to a negative total return in 2018 with the U.S. Aggregate Bond Index at -1.5%.
In real estate (REITS), the increase in interest rates has been more profound in contributing to negative total returns with the S&P Global REIT index down -5.8% and U.S. REITs down slightly more.
Commentary
People often try to explain why the market is doing what it is doing. Pundits have pointed to chaos in the White House, possibility of a trade wars, fears of higher interest rates, or to the simple fact that U.S. stocks have appreciated in value and are priced much higher than their historical averages.
As we wrote in February volatility is normal and the extremely calm markets of the last few years were the anomaly.
We added, “Some may suggest trying to sit out this volatility. Having a tactical or market-timing approach sounds great. Who wouldn’t want to only participate in the market’s ups but miss the downs. Unfortunately, actual results of investment professionals show timing doesn’t work. Sure, some may get lucky a time or two, but luck isn’t a sound principle to base your investment strategy and life savings upon.”
For those of you reading this last paragraph with a bit of skepticism (or perhaps overconfidence?), rather than reading the empirical evidence over the last fifty years on the inability for professional investors to time the market, just listen to the renown Alan Greenspan for 37 seconds.
Alan has probably forgotten more about economics and financial markets than most could ever hope to learn. He sums it up perfectly, “Markets react to the way people behave…and sometimes people are a little screwy.”
It appears that investors have become a little screwy more recently. Or maybe the screwiness had been on holiday for the last few years. Regardless, unless you can predict how 7+ billion people will feel and behave tomorrow and the next days forward, there is no point in trying to time how their behaviors will impact the market in the short run.
Rather, having a financial life plan in place and matching your investments to it is prudent. Done right, this will help ensure you are not taking too much risk but also an appropriate amount to help obtain the returns you need over time to achieve your goals and maintain your lifestyle.
Your plan will also determine where exactly your retirement income is coming from, matching short-term goals to shorter-term, high-quality assets. Your stock investments are for longer-term growth and generally shouldn’t have to be utliized for several years.
Of course, this is all fluid as your life, spending goals, investment markets, and tax laws change. Thus you need to regularly monitor and update your planning to ensure you’re staying on track.
In the absence of a sound plan, people tend to fly blind, make knee-jerk decisions, attempt to time the markets, and generally tend to harm their financial and emotional self. What rational person would want to do this?
PS – Don’t yet have a sound financial plan and your investments aligned to it?
Contact us for a free consultation to learn how we can help you.
Kevin Kroskey, CFP®, MBA is President & Sr. Wealth Advisor with True Wealth Design, an independent registered investment advisory and wealth management firm specializing in retirement, tax, and investment planning for successful familes at or near retirement.
