2017 was a remarkable year of smooth sailing for investors. The U.S. stock market closed out the year with its biggest gains since 2013, and one of its calmest years on record. The widely followed S&P 500 Large Cap index finished the year up 22%. There was no meaningful drawdown during the year, and only 8 days in which the index moved more than 1%. After a mild pullback of only 3% early in the year, market winds pushed steadily forward with one of the longest unbroken up-trends in stock market history.
Diversified portfolios also did well this year, with international markets doing better than the U.S. for the first time since 2012. Small and mid-caps which often boost returns, however, reduced returns slightly. Balanced portfolio indexes, which incorporate roughly 40% in bonds to reduce volatility were up between 12% and 15%, depending on the index.
By any measure, investors enjoyed a year of steady winds and smooth sailing that they are unlikely to see again for many, many years to come.
How’d We Do?
How did we do in our market predictions for this year? We’ll, we got the big one right…based on positive underlying economic fundamentals, I expected positive returns. But, in all fairness, I predicted low single-digit returns. I also predicted that international would take off in 2017, and that it did, indeed. On the negative side, I projected either high volatility, or a stagnant market until the economy caught up with the market. I’m happy to say I missed both of those!
I’m also happy to say I advised clients to stay invested, even though many were concerned about an unpredictable president and a market that seemed over extended and long in the tooth. When we put together a financial and investment plan, we do so in expectation of periods of considerable volatility. So, even though some investors were concerned we knew our clients were invested appropriately for their long-term plan. And it turned out to be one of those years that makes the long-term plan work.
Lessons Learned
In hindsight, what can we learn from 2017?
- Stay invested (appropriately for your risk tolerance and time horizon) – It’s simply too difficult to try and get in and out of the market – making the right call twice – based on expectations of coming markets. To make the long-term plan work it is best to invest appropriately, and then stay invested. You have to trust the process and the plan.
- Stay Diversified (appropriately for your risk tolerance and time horizon) – large cap growth stocks dramatically outperformed large cap value stocks this year, up 30% vs 14%. And, after multiple years of lagging, international stocks did much better than U.S. We stay diversified primarily to reduce volatility, but also to make sure you capture gains, wherever they may occur.
- Patience is Key – after multiple disappointing years for diversified portfolios patience paid off with nice gains. Meanwhile, a diversified portfolio helped protect the portfolio against potential losses in any single asset class, sector or investment style.
- Smooth Markets are Rare – we have to go all the way back to 1964 to find another year that stocks had such steady gains and such little volatility along the way. It is rare indeed. We should not let volatility surprise us when it comes back to normal… or abnormally high levels again. Volatility is the norm, and you must be willing to sail through the occasional squalls and storms to get the long-term gains the market offers.
What’s Ahead?
I’ll be writing another article soon to give a detailed outlook for 2018. But suffice it to say here that it is very similar to my expectations last year: positive but low returns, higher volatility, outperformance by international markets, and a tricky bond market.
Improvements in Client Service
While it’s been a great year in the markets, it’s also been a great year at our firm. To serve our clients better this year, we’ve:
- Added a new advisor to our staff.
- Moved to new offices with more space.
- Increased the number of educational events we hosted.
- Added new risk analysis technology with the “Riskalyze” tool.
- Improved our portfolio management process with the new “WealthPort” platform, allowing us to more easily bring our best ideas to all clients efficiently and effectively.
- Added technology to make it easier to serve clients remotely.
- Added reflection / discovery tools and faith-based portfolios to better serve faith-focused investors.
If you are a client, we hope you have enjoyed and appreciated these improvements. If you are not a client, and you would like to learn more about our financial planning, investment management, or faith-based services, please give us a call. We’d love to visit with you.
Greg
If you would like to discuss this article, please call me at 316.440.2550
Gregory A Carr MBA, AAMS®, CKA®
Financial Advisor
Accredited Asset Management Specialist
