I wish you and your families a very Happy and Healthy 2019.
Each year I make it a point to save the new year market outlooks to read them again 12 months later and see how true the predictions were. For the most part predictions on where the financial markets will end the year mostly fall short. The reason for this is because the data used to generate these forecasts in December/January is constantly changing throughout the year. As an avid football fan I use the example of a team that has a great 1st quarter and then for the remaining 3 leaves you scratching your head as to where the great play has gone (as a Giants fan I relate well to this). So rather than give you some guess at where the financial markets will be at the end of 2019, I thought it would be more valuable to outline a few themes that I will be sharing with my clients throughout the year. I hope you enjoy the read and encourage you to contact me with any questions.
- Recession vs Correction: Most economic pundits do not feel that the recent December market correction is an indication that we are headed towards a recession. Most will agree that global growth is slowing however many of the underlying fundamentals of the economy still remain strong. In reality most experts feel that we are in the late stages of a bull market which is often associated with market turbulence, rising rates, slowing earnings growth, low unemployment and widening credit spreads.
- Market corrections are not unusual: It is important to remember that we have been through these events before, although each time they occur it is still rather difficult to deal with. Looking back at past years we have experienced double digit market corrections in 2010, 2011 and the one that sticks out in my mind early 2016 when the markets dropped 14.2% to start the year (good times!). I often use these past events as reminders that if we were able to navigate through them then then we will be able to do the same now. If there is one theme that sticks out in all of these past events it is not to panic!
- Diversification is more important than ever: This message get lost in years like 2018 when every major asset class suffered a negative return however please don’t lose sight on how valuable a properly diversified portfolio is for investors. Years like 2018 server as great reminders to investors on how much “risk” they are truly holding. Advisors who are focused on chasing returns in order to predicate their value on performance often use risky assets that show their true colors in years like last. We use a disciplined, diversified investment approach for your money. We use allocations that are within our clients risk tolerance and we do not chase returns with “hot” investment products or companies. The true reason why we have been told that diversification works is because generally what has done well in the past, may very well struggle in the period ahead.
- Use these corrections as opportunities: I understand that everyone is at different stages in their life however for people who are contributing to a retirement plan or an investment account at work or with us and still have a long time horizon now is a great time to take advantage of the increased contribution limits for 2019 and increase your maximum contribution. If you are not currently at the retirement plan max then challenge yourself to increase your contribution. I know this may sound rather “stereotypical for a financial advisor”, but it never hurts to save more. Often people are surprised with how little an increased savings plan effects their overall budget.