Seasons Greeting Lessons from Scrooge…. past, present, and future.
As of Friday’s market close, the S&P 500 1-year return is 0.0% – 2018 Year-to-Date down 0.9%. So a lot of ups and downs (Downs we notice and feel more) to get to 0.0% return for the index. The S&P is made up of the largest 500 companies in the United States. International Stocks and US Mid & Small Cap companies have fared a lot worse. International Stocks – 1-year return down 15% – US Small Caps down 13%
The news has been grim for short term investors; however one of the main reasons equity investors are rewarded with higher long term returns is for the uncertainty “risk” & market movement “volatility”. Given the current level of uncertainty, expected returns going forward should be higher to compensate long term investors for taking the risk. This is known as the risk premium.
- There is news of a potential government shut down. I didn’t realize the government has been shut down 2 times already in 2018.
- Watch one White House daily briefing – if you can
- Tariffs – which in plain English are a tax on goods and services passed on to consumers
- Price of crude is down 40% since October
- Flat yield curve – savings accounts paying 2% – seems high after years of 1%
- Home sales have slowed in really hot real estate markets
- Plus its market prediction season on top of everything else. To get on TV you need to predict disaster.
Ghost of Christmas Past – It’s always good to reflect on how we prepared & managed through other periods of market turmoil. 20 years ago, the Dow Jones index was at 9,200 and the largest company was GE. A lot has happened over the past years. It’s funny & sad that most of the charts we look at seem to highlight the bad times. I guess that’s human nature – try and think of some good financial times & be grateful for all you have accomplished.
Ghost of Christmas Present – Where are we now? What has changed since the summer (other than being colder)? Today, the Dow Jones Index stands at 23,850 and 3 largest companies are Microsoft, Apple & Amazon – a lot of people can’t imagine life without their products, 20 years ago very few used their products.
Ghost of Christmas yet to come – One of the main reasons we constantly review cash flow (Have money in the pantry) and taxes, is to be prepared for the future. No one really knows what will happen in markets over the next year, but I am rationally optimistic that the world will move forward and 5, 10, 20 years from now will be talking about new companies we can’t imagine life without.
Over the last 20 years Lighthouse Financial Advisors, Inc. has stayed focused on what we can control and we will continue that focus as we move forward into the next 20 years. I know the news and markets are discouraging, but please don’t hesitate to call if you have questions or concerns. That’s why you work with us, we are here to help and listen.
Wishing you a wonderful holiday and a Happy New Year,