{"id":432,"date":"2016-01-14T14:27:03","date_gmt":"2016-01-14T22:27:03","guid":{"rendered":"https:\/\/chaltenadvisors.com\/blog\/?p=432"},"modified":"2016-01-14T14:27:03","modified_gmt":"2016-01-14T22:27:03","slug":"year-of-enlightenment","status":"publish","type":"post","link":"https:\/\/chaltenadvisors.ca\/blog\/year-of-enlightenment\/","title":{"rendered":"Year of Enlightenment"},"content":{"rendered":"

\"light-bulb-1459813-638x427\"<\/a><\/p>\n

It’s hard to feel good looking at media commentary on the performance of stocks in 2015 and 2016\u00a0– here’s a sample:<\/p>\n

Canada\u2019s year of \u2018serial disappointments\u2019 leave investors reeling<\/em> \u2013 Financial Post
\n5 reasons why the market meltdown matters to all Canadians<\/em> \u2013 Global News
\nSell everything ahead of stock market crash, say RBS economists<\/em> \u2013 The Guardian
\nAnalyst: Here Comes the Biggest Stock Market Crash in a Generation<\/em> \u2013 Fortune
\nThis Is Why Stocks Were So Disappointing in 2015<\/em> \u2013 Money
\nStock-market crash of 2016: The countdown begins<\/em> – Marketwatch<\/p>\n

A “year of disappointment” suggests that expectations at the beginning of the year were for a better outcome. \u00a0Of course\u00a0at all times people “hope” for positive outcomes but looking at one month or even one year at a time is too short. \u00a0Investors should not just hope but expect that stocks will go up over longer time periods, but this doesn’t necessarily mean that over short periods of time stocks won’t be volatile and suffer periods of poor performance.<\/p>\n

What many\u00a0fail to appreciate is that in order to actually experience the long term average stock market returns requires being invested during both good times and bad. \u00a0In fact it’s actually quite rare that markets actually\u00a0deliver the\u00a0average rate of return in any given year. \u00a0When you ask most people what they would expect the long term average return on the stock market to be\u00a0you might\u00a0get an answer somewhere between 8 and 10%. \u00a0For the S&P 500 the annualized compound return from 1926 through 2014 was in fact 10.12%. \u00a0But how many years did the S&P 500\u00a0actually return between 8-10%? \u00a0Zero! (source: Dimensional Fund Advisors<\/em>) The average return is elusive in any given year and the evidence shows clearly that trying to time market ups and downs is futile. \u00a0Fund flow data confirms that most investors move their money in and out of the market at the worst times. \u00a0Average investor<\/em> returns over long periods are\u00a0more like\u00a03 to\u00a04%, much less than returns of the market itself.<\/p>\n

So rather than trying to time the market, investors should set themselves up to use\u00a0market volatility in their\u00a0favour. \u00a0This is best accomplished via a sensible target asset allocation based on personal risk tolerance and financial goals coupled with disciplined re-balancing. \u00a0While emotional reactions to media commentary often leads investors\u00a0to do what’s worst for their portfolio (i.e selling low and buying high), a disciplined rebalancing strategy will help to accomplish\u00a0the opposite. \u00a0This means purchasing asset classes that have underperformed and selling asset classes that have outperformed to bring your portfolio back to its target allocation (buying low and selling high).<\/p>\n

The first step for many will be to develop a sensible asset allocation in the first place. \u00a0For Canadians this means far greater\u00a0diversification outside of Canada. \u00a0Canadian stock market performance\u00a0in 2015 shouldn’t be seen as a disappointment, but it should\u00a0serve as a warning\u00a0as to the dangers of relying on too narrow a segment of the investable world.<\/p>\n

Rather than a year of disappointment, treat 2015 as a “year of enlightenment”. \u00a0Improve the way you invest going forward with better diversification, sensible asset allocation, disciplined rebalancing and lower fees.<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

It’s hard to feel good looking at media commentary on the performance of stocks in 2015 and 2016\u00a0– here’s a sample: Canada\u2019s year of \u2018serial disappointments\u2019 leave investors reeling \u2013 Financial Post 5 reasons why the market meltdown matters to all Canadians \u2013 Global News Sell everything ahead of stock market crash, say RBS economists […]<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1,16,11,10,7],"tags":[],"class_list":["post-432","post","type-post","status-publish","format-standard","hentry","category-all-posts","category-asset-allocation","category-diversification","category-evidence-based-approach","category-graham-bodel-posts"],"_links":{"self":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/432","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/comments?post=432"}],"version-history":[{"count":1,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/432\/revisions"}],"predecessor-version":[{"id":434,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/posts\/432\/revisions\/434"}],"wp:attachment":[{"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/media?parent=432"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/categories?post=432"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/chaltenadvisors.ca\/blog\/wp-json\/wp\/v2\/tags?post=432"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}