Do you want to invest better in 2016 and beyond? The first step is to understand what happened in 2015 and identify a few myths you probably believe in. I’ll first break those myths and then help you apply them to 2016 and beyond.
- “U.S. stocks post worst annual loss since 2008,” reads one headline. The story goes on to say "Rough trading Thursday pushes S&P 500 into the red for the year." In reality, U.S. stocks were up, rather than down. The total return (including dividends) of the S&P 500 was +1.38%. The Vanguard S&P 500 ETF (VOO | A-98) was +1.31%, while the Vanguard Total Stock Market ETF (VTI | A-100) was +0.36%, as smaller-cap stocks lagged large-caps, and “dumb beta” outperformed. Though technically true that stocks had their worst year since 2008, it’s completely misleading.
- “US stocks ended 2015 mostly flat, capping volatile year.” It sure seemed like a volatile year reading headlines like “Stocks plunge on another wild day on Wall Street” and “Stocks surge; Dow exits correction territory.” I asked Robert Waid, managing director of Wilshire Analytics, to run the numbers for me. The daily volatility of the total U.S. stock market (Wilshire 5000) in 2015 was 0.96% versus 1.08% since 1980. The myth of market volatility continues.
Very Boring Year
The bottom line is that stocks and bonds had one of the most boring years ever. U.S. stocks as well as the Barclays Aggregate Bond Index total returns were slightly positive. High-quality bonds were also as boring as ever, but even the stock market had less volatility than average.
If you or someone you know had trouble staying the course in a market as dull as 2015, just think of what will happened to behavior if yesterday’s market is a sign of what’s to come this year.
Though the bull stock market continued with the 7th-consecutive year of positive U.S. stock returns, the odds of seven more consecutive positive years is low.
You might not be as risk tolerant as you think. Pick an asset allocation you can live with and stick to it. Don’t believe media headlines. If they can’t even get the past right, what makes you think they know the future?
Allan Roth is founder of Wealth Logic LLC, an hourly based financial planning firm. Roth is required by law to note that his columns are not meant as specific investment advice. He also writes for the Wall Street Journal, AARP and Financial Planning Magazine.