Now that the dust has settled on 2016, it will be remembered as an excellent year for equity investor. However, the headline numbers for the year don’t even begin to tell the story. It seems like a distant memory now, but after the first few weeks of January the stock market was off to its worst start in Wall Street HISTORY. By mid-February, several major market indices were in a bear market (as defined by a 20% or greater selloff). Then came “Brexit” and, of course, the ELECTION. The financial media played on the fear in the market with a myriad of reasons to panic, sell it all, and wait for all this mess to pass.
In retrospect, that would not have played out well. US Markets as measured by the S&P500 climbed the proverbial “Wall of Worry” to a 12% gain for the year! Small Cap Value (small US Stocks at low valuations) gained over 24% (with the Dimensional Small/Targeted Value outpacing at nearly 26%.)
2016 is actually the perfect illustration of our planning approach and investment philosophy playing out. So, as we start 2017, it is prudent to review the longstanding principles that have proven to consistently work since we are all human and have the tendency to let the crisis of the day distract us from the following proven tenets: 1) Markets work and over time will make us money; 2) Timing strategies don’t work as we’ve seen recently and proven over and again in reams of available academic research; 3) Diversification (often refer to as the “only free lunch in investing”) helps stack the odds in our favor; 4) Small and Value stocks provide a higher expected return over long investment horizons (10+ years); and 5) Costs Matter. Keeping goals and objectives firmly in mind, we always try to stack the odds in our favor using an evidence-based approach to investing and focusing on the things we CAN control, namely diversifying portfolios, reducing expenses, minimizing taxes, and staying disciplined.
As Samuel Johnson famously wrote, “most people need to be reminded more than instructed”. Rarely does a year show the culmination of all of these timeless investment tenets working in unison, so as we enter 2017 and beyond, let’s raise a toast to 2016 – A Year to Remember!
A couple of Tax Tips for this filing season:
HSAs – we have received a lot of questions about HSAs. If you have a qualifying plan, they are a great way to pay for health care out of pocket costs, as the contributions are tax-deductible and grow tax free. The cap for 2017 family plan HSAs remain at ($6,750, although single plan max increases to $3,400).
Traditional IRA and Roth IRA contributions – the maximum contribution for both of these is $5,500 and $6,500 for filers over the age of 50. You have until April 15th to make the contributions to your account.
As always, we are humbled and honored that you have chosen E|Financial Alliance to help you implement a vision and plan for your future, and look forward to your continued success.
Mitch & Destin