It ended just a few months ago, but do you remember what your portfolio did in 2017? Do you remember the widespread fears that sent ripples through the markets, and how that felt? If you said “no”, you’re not alone. It wasn’t a challenge to earn a positive investment return last year; nearly every major asset class had positive returns.
In fact, we think that long-term, 2017 may be simply forgotten for its lack of major events. Have you ever driven across town and forgotten how you got there because you were on “autopilot”?
What we experienced in 2017 was extremely comfortable, and, as a result, it allowed investors to go on autopilot. It was easy to stay invested for the long-run because there was so little negative news in the markets. While major events were largely non-existent, the aspect that, in reality, made 2017 extremely remarkable was the lack of volatility.
To illustrate how unusual the stock market was in 2017, in a typical calendar year US stocks experience one correction of 13.8%. The maximum decline (highest to lowest point) in 2017 was only 3%. Source: J.P. Morgan Asset Management, Guide to the Markets, March 2018, “Annual returns and intra-year declines”.
Prior to 2018, the US stock market went an entire 18 months without even a 5% correction. To put the magnitude of that anomaly into perspective – in a typical environment we should have expected seven or eight 5% drops. We saw zero. Source: J.P. Morgan Asset Management, Guide to the Markets, March 2018, “Annual returns and intra-year declines”.
Some years, like in 2008/2009, we see declines that are much larger than the average, and, because those losses are very emotionally and financially traumatic, our brains do a much better job of remembering them. On the other end of the spectrum, years where volatility is much lower than average simply don’t have as much of an emotional effect on our memories and are forgotten.
Unfortunately, when volatility eventually returns, as it has for the first few months of 2018, we are caught off guard and jolted out of our autopilot. We no longer feel comfortable. The fearful news headlines are everywhere. Often investors jump to conclusions, wanting to do something and anything to protect themselves, which leads them to buy and sell at exactly the worst times.
The higher volatility we’ve seen this year will most likely continue, but it is by no means a “new normal” – it’s just normal, even if most of us have forgotten what that feels like.
Sterling is prepared for volatility. Not only are our individual portfolios constructed based on your individual goals and circumstances, they are diversified into many different kinds of assets that are designed to help smooth out the bumps in the stock market. Through our disciplined rebalancing process, we use the ups and downs as opportunities to both invest in undervalued assets and sell assets at high prices. As we help you achieve your goals, we are diligently on the lookout for controlling your risks and finding values for your investments.
In other words, Sterling serves as the GPS to help navigate your portfolio safely through the turns and bumps along the way to your goals. We never take our eyes off the road!
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Asset allocation, which is driven by complex mathematical models, should not be confused with the much similar concept of diversification. A diversified portfolio does not assure a profit or protect against loss in a declining market.