At the beginning of each football season every NFL team has high hopes of winning the Super Bowl, even the Cleveland Browns. Enthusiasm and expectations are high.
During the 1970s the Minnesota Vikings were one of the most dominant football franchises in the NFL, winning 78% of their games from 1969 to 1977. Because of their stellar play they had the opportunity to participate in four Super Bowls. Despite their regular season success, they failed to win one title. They were the first team to lose four Super Bowls.
Not to be out done, the Buffalo Bills conquered their opponents in the early 90s. They won 76% of their games and appeared in four consecutive Super Bowl’s, the first team to do so. They lost all four.
These two teams had four chances to win a Super Bowl but failed to do so. Despite losing every title game, were their seasons successful? I’m sure there was disappointment, but they did win several games and play in multiple Super Bowls, an opportunity lost on most teams.
In January, investor hopes were high as the Dow Jones soared more than 5%, crossing 26,000 for the first time. In hindsight, we should’ve sold all our stocks in January and moved to cash. After it peaked, it promptly fell 10.3%.
As we approach the end of the year, most asset classes are trading in negative territory. U.S Stocks remain in positive territory, but bonds, international investments, emerging markets, real estate, and commodities have negative returns. A challenging year for diversified portfolios.
Dimensional Fund Advisors Global 60/40 (60% stocks, 40% bonds) Fund has generated an average annual return of 8.1% since 1984. This fund is diversified across multiple countries, several sectors, and thousands of securities. It has made money 78% of the time, a similar winning percentage to the Vikings and Bills during their Super Bowl runs.
The S&P 500 Index has posted positive annual returns 73% of the time and since the end of World War II it has averaged 11.3%.
Despite stellar winning percentages and generous annual returns, sometimes investments, all investments, fail to live up to expectations.
What should you do if your investment hopes and dreams have been dashed this year? Here are a few suggestions.
Be Patient. No trend lasts forever. Circumstances change. After the Dow Jones fell 10% in January, it rose 15% for the next eight months. In 1994, the S&P 500 gained a paltry 1.4% before rising 144% from 1995 to 1999. Long-term government bonds fell 14.9% in 2009. They appreciated 41% over the next three years.
Plan. During the volatile months of February and October, I was able to stress test client portfolios and no one’s goals were impacted due to the market’s downturn. The financial plan allowed me to review client goals and portfolios in real time. The analysis gave us comfort despite the lack of cooperation from the markets. A financial plan may help you with your long-term goals and give you peace of mind when markets fall.
Rebalance. As markets move around the world, it’s likely your asset allocation has changed. If your portfolio is off kilter, rebalance it back to its original state. The best time to reset your portfolio is in January after your year-end capital gains and dividend distributions have been credited to your account.
Nothing. If your goals have not changed and your asset allocation is normal, stay the course. Don’t trade. Let your portfolio find its footing. For example, if you purchased the Dimensional Global Portfolio in 2008, you lost 22.7%. However, if you did nothing and held it through the end of 2017, you made 6.1% per year.
Pursue. During market disruptions there’s always opportunities to find good investments. If you have cash to invest, look for investments you can add to your portfolio for future growth.
As we close out 2018, spend some time honing your goals and reviewing your portfolio. In a few weeks it will be a new year, a new season and hope springs eternal.
“Winning means being unafraid to lose” ~ Fran Tarkenton
November 19, 2018
Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.