Apr

6

2015: A Time for Patience

Don’t let the market’s jumps rattle your commitment to staying invested.

What the market does today, it may not do tomorrow. That may seem elementary, but there are days, weeks, months, and even years when that investing lesson is ignored. Wall Street started 2015 with pronounced volatility, and in the opening six weeks of the year, investors were again reminded why patience is so important.

What did investors do in January? Sell. The S&P 500 lost 3.10%. Discouraging news items bred pessimism: deflation was coming to Europe, world demand for oil had peaked and prices would never come near $100 again, the slowdown in Europe and Asia would soon unravel America’s economic comeback. An old market belief dictates that the opening month of a year sets the tone for the rest of the year. Clear implication: 2015 equals bad market year. Sell, sell before it is too late.1

What did investors do at the start of February? Buy. The S&P 500 gained 3.03% in the first trading week of the month (and it had advanced 2.64% in the 30 days ending February 6). Encouraging news items bred optimism: the European Central Bank unveiled an asset-purchase program extending into 2016 to fight deflation with a scope matching QE3, oil prices began to rebound sharply, assorted earnings pleased Wall Street. Clear implication: 2015 might not be so bad. Buy the dip.2,3

What’s the takeaway here? Don’t panic. Don’t let a down January lead you to put off your annual IRA contribution or trim your per-paycheck retirement plan deferrals. What ground stocks lose, they may quickly regain.

For the record, 2014 provided the same lesson in patience. January 2014 saw the S&P 500 fall 3.56%. February 2014 brought a 4.31% gain. The S&P went on to go +11.39% for the year. Perhaps its 2015 performance will mimic this.1,3

History is no barometer of future stock market performance, but it can be illuminating with regard to how stocks have overcome the “January effect” – a bad January does not necessarily lead to a lousy year. In fact, here is the real eye-opener: during 1989-2014, the S&P finished up for the year 75% of the time after a loss of 2% or greater in January, with an average annual gain of nearly 8% in those market years. In fact, only twice in the past quarter-century has a bad January presaged a bad year for the index (2000, 2008). In 2009, it lost 8.57% in January and went +35.02% for the rest of the year. In 2003, it gave up 2.74% for January, then went +29.94% across the next 11 months. This illustrates that on Wall Street, anything can happen – and that includes good things.4

Stay patient & stay invested. The last couple of years have been notably placid for U.S. stocks. Entering February, the S&P had gone more than 1,200 days without a correction. That lulled some investors into a comfort zone, to the point where they overreacted to significant (but in no way aberrant) stock market fluctuations.5

Patience is a virtue for the long-term investor trying to build wealth for retirement and other future objectives. Already, this stock market year has highlighted its value. The Federal Reserve may elect to raise interest rates and the strong dollar may persist for some time, but those factors may not hold back the bulls in 2015 any more than many others have since 2009.

 

Citations.
1 – ycharts.com/indicators/sp_500_monthly_return [2/9/15]
2 – markets.on.nytimes.com/research/markets/usmarkets/usmarkets.asp [2/6/15]
3 – online.wsj.com/mdc/public/page/2_3022-quarterly_gblstkidx.html [12/31/14]
4 – investing.com/analysis/75-of-the-time,-%27down%27-january-good-for-s-p-500%27s-yearly-close-240337 [1/31/15]
5 – tinyurl.com/kw8ue3b [1/31/15]

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by MarketingLibrary.Net Inc., for Mark Lund, Mark is known as The 401k Advisor, Investor Coach, The Financial Advisor, The Financial Planner and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. an independent, fee-only, Registered Investment Advisor firm providing 401k consulting for small businesses and financial Advisor services for professional athletes and individuals. Stonecreek is located in Salt Lake City, Murray, West Jordan, Sandy, Draper, South Jordan, Provo, Orem, Lehi, Highland, Alpine, and American Fork in Utah.

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Mark K. Lund is the firm's founder, CEO and author of The Effective Investor, a #1 Best Seller. He has written articles for or been quoted in: The Wall Street Journal, The Salt Lake Tribune, The Enterprise Newspaper, The Utah Business Connect Magazine, US News & World Report, and Newsmax.com, just to name a few.  Mark publishes two newsletters called, “The Mark Lund Growth Report” and “Mark Lund on Money.”  Mark provides CPE (continuing professional education) courses for CPAs.  You may also have seen him on KUTV Channel 2, or as a guest speaker at a local association or business. Mark provides investment and retirement planning services for individuals and 401(k) consulting for small businesses. In his book, The Effective Investor, Mark exposes the false narrative magazines, media, big Wall Street firms, and most advisors want you to believe. The good news is that Mark will show you that you don’t need their speculative ways of investing in order to be successful. Get a free copy when you schedule your initial consultation.

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