New Year…..Same Investment Principles

January 21, 2016  |  

New Year…..Same Investment Principles

Key Takeaways:

  • At the start of every year, you can count on news outlets, economists and fund managers bombarding us with varying opinions about the direction of the market.
  • The only certainty for the market in 2016 is that it will be different from 2015.
  • A disciplined, cost-sensitive, broadly diversified investment strategy creates a portfolio you can live with, year in and year out.

You can set your watch by it. About this time every January, news outlets, economists, fund managers and other pundits flood the media with their predictions about what the market will do in the year ahead. Bold predictions abound regarding anticipated interest rate movements, the direction of the S&P 500 index and the global economy, thus fueling optimism or fear—sometimes both–for the average investor.

Rewind the calendar 12 months. Remember this feature article in the Wall Street Journal (Wall Street Strategists Expect Stocks to Keep Climbing in 2015 )? Nearly two dozen “experts” weighed in about the anticipated direction of the S&P 500 in 2015. The average anticipated return among the strategists was an increase of 8.2 percent. That’s consistent with the long-term historical average return for the index, but not even close to what happened in 2015. If you recall (or maybe chose to forget), the S&P 500 ended 2015 in negative territory for the year, and how many of the experts surveyed by the Journal predicted a down year in 2015? That’s right—ZERO!

Predicting the market’s direction has confounded experts for centuries, but in our digital age, with a 24/7 news cycle, we need more and more content to fill the news hole so “experts” are never going to stop making forecasts.  However, for the average investor, basing your investment and retirement decisions on such opinions and forecasts is a recipe for disappointment.

If you insist on basing your investment strategy on predictions, an article by Jim Parker of Dimensional Fund Advisors is a great starting point.  A few examples of Jim’s predictions for 2016:

1.  Markets will go up some of the time and down some of the time.

2.  Parts of your portfolio will do better than other parts.  We don’t know which.

3.  There will be unexpected news.  Some of it will move prices.

Obviously these are tongue-and-cheek predictions, but that’s the point.  No one knows exactly what the markets will do in 2016 – the only certainty in 2016 is that things will be different than they were in 2015.

As we have posted in the past, the best investment strategy continues to revolve around a disciplined, cost-sensitive, broadly diversified portfolio. This strategy allows you to create a portfolio that you can live with, year in and year out, as your needs, life-stage and risk tolerance changes.


We wish you a very happy and successful New Year. For more information about our investment philosophy, please visit our Evidence-Based Investing Center or feel free to email me with questions.

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About Patrick Melvin Jr.

Patrick D. Melvin Jr., is a Wealth Manager at Independence Advisors, LLC. Pat models client’s financial plans and works with the firm’s clients on financial planning areas such as retirement planning, investment planning and estate planning. CLICK HERE TO ASK PAT.

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