Our hope is that 2016 has greeted you and yours with health and happiness!
Unfortunately the same cannot be said of how 2016 greeted the world’s markets. Worries continue to abound: the continuing glut of world oil supplies, economic slowdown in China, a strong U.S. dollar inhibiting areas of manufacturing growth, a conflict between Saudi Arabia and Iran, ISIS… and closer to home; the Provincial, Federal, and American political scene. Each passing decade, a theme tends to emerge. The steep slide in the price of oil may be the predominant theme of the 2010-2020 decade. Currently “many forecasters now see the global oil supply/demand balance moving from surplus to deficit sometime in 2016.” (Key Questions for 2016, CIBC Macro Strategy) In our experience, it’s near impossible to predict the direction of oil given the geo-political events controlling and influencing energy prices.
Are you wondering when a ‘normal’ market will occur? It could be a long wait as normal is not a word that in any way, shape or form describes the markets.
- It’s normal to experience volatility – it’s a consistent force in both the stock and bond markets; asset allocation works to reduce the force, but you’ll still feel it.
- It’s normal to expect sustainable, consistent income (income will vary given interest rates) that such a portfolio delivers to the diversified investor.
- It’s also normal to expect some assets in such a portfolio to outperform, and others to lag due to their different sensitivities to economic cycles.
What can be described perfectly well by the word ‘normal’ is the long term behavior of a properly diversified portfolio.
Diversified portfolios by their very nature do not take bets. The goal is to access many assets to spread risk and smooth volatility. Secondarily a diversified portfolio will create significant income over time, reinvesting or paying out along the way. Volatility represents good fortune to long-term investors by presenting the opportunity to capitalize on cheaper prices of quality holdings. If you’re willing to embrace and take advantage of dips along the way; the result can be quite significant.
A final thought on behavior: the average investor regrettably can be their own worst enemy, jumping in and out of their investments at precisely the wrong times and effectively sabotaging their chances to meet their long term goals. Discipline pays off – over time the numbers prove over and over again that those who stay invested in quality diversified portfolios, ignoring all the noise are more financially successful than the jumpers!
Wishing you a great 2016! Debra & The Wooding Group