Portfolio Performance Reports Available on Your Portal: We have finished reconciling all client portfolio performance reports. It was a difficult year for diversified portfolios. 2015 was unique because the S&P 500 was essentially flat for the year. Over the first eight months market volatility was extremely low, as evidenced by the S&P 500, which moved less than 4% in either direction. In August volatility picked up and the S&P 500 declined 10% following significant declines in China’s stock market. Most all global developed markets recovered (in local currency terms) during September and the last quarter of the year.
In summary, 2015 market performance was significantly affected by fears related to China, declining energy prices, the increased value of the dollar, and fear of the Federal Reserve increasing interest rates. As is typically the case, the S&P 500 returns do not tell the whole story. U.S. large cap stocks were flat, small cap stocks were down -2% or more, foreign large cap was down -1% or more, emerging market stocks were down -15% or more, and commodities in general were down with oil about -28%. In addition, a tilt toward “value” companies significantly underperformed the market, as evidenced by the Russell 3000 value index, which decreased over -4%, and Warren Buffett’s Berkshire Hathaway, which decreased over -12%.
Investing wisely does not lead to great performance in all periods. This is why we strive to construct client portfolios to focus on the long term, and reflect both the risk required by your financial plan and the risk you can emotionally tolerate. We intentionally design diversified portfolios to manage risk and cash flow needs. (If you have not updated your risk tolerance using our Riskalyze software or don’t know what asset allocation model you are in, please give us a call).
Asset Allocation Model Portfolio Rebalance: This week we are implementing the asset allocation model changes that we shared with you last week (click here for the new model summary). Expect to see some trades in your accounts.
Fidelity Changing Money Market Funds: To comply with SEC rule changes for money market funds, all clients owning the Fidelity Municipal Money Market Fund (FTEXX), as their cash sweep vehicle, will automatically be transferred to the Fidelity Taxable Money Market Fund (FDRXX) in early February. The primary reason for the change is preserve the $1 net asset value for funds being deposited or withdrawn from the portfolio.
Performance Meeting/Tax Organizer for Family Office Clients: Isabelle will be sending out our tax organizer for all of our Affordable Family Clients. Patty and Kirsten will be calling you during the last 2 weeks of January to schedule a performance review meeting (and a tax review meeting if applicable). In the interim, don’t hesitate to call Don or Adam.
Invoices: Later this week Patty will be sending out our invoices for the first quarter. As a reminder if you want your portfolio performance to be net of fees, you should have your fees deducted from your accounts.
If you haven’t noticed, we have moved from a low volatility environment (through August of last year) to a high volatility environment. We will likely be in this environment until oil prices have bottomed and investors have more confidence in China’s economic situation. This is a traders market that is not focused on economic fundamentals and is focused on making money with these big price swings.
The economic fundamentals are that in the U.S., employment is strong and the economy is chugging along. In Europe, the economies are growing slowly and the European Central Bank is in a pro-growth mode. The Japanese central bank is also in a pro-growth mode. All the fear revolves around China and energy producing dependent countries (as well as energy related companies in the U.S.). So strap on your seatbelt as we anticipate increased volatility over the upcoming months (both up and down).
As mentioned above we are implementing our asset allocation model revisions this week. As a summary, we are aligning our models with risk scores to better match client expectations.
If your cash flow needs for the next year have changed, please let us know. If you are concerned about this market volatility’s impact on your financial plan, please give us a call.