2020 Year in Review

This year typified the term, “roller coaster ride”

In the first quarter of the year, we saw steep losses in the markets through March.  Through 3/23/20, the S&P was down -28.66%. the EFA Index was down -33.04%, and the Russell 2000 Value down -44.17%! And much of that activity occurred in a few weeks in March. For many, it was a terrifying two weeks.

But beginning in April, for no apparent reason, a turnaround began. From 3/23/20, there has been an incredible rebound, intensifying after the election. From that date through 12/3/20, the S&P 500 is up 60.49%, and the EFA Index is up 52.88%. But the asset classes that most people have avoided, are up even more. International Small is up 74.49%, and the Russell 2000 Value Index is up 71.57% in just a few months.

Over the same period, our investors have participated in that rebound strongly. The FMUEX, the US stock fund in Matson Money portfolios, is up 73.48%. FMNEX, the international stock fund is up 66.34%.

What are the morals of this story?

Don’t panic, stay the course, and the market will never cease to surprise investors. Going back to March, the market fell at amazing speed. But then who saw this lightning-fast recovery? And again, pundits were predicting market declines after the election based on certain outcomes, yet November has been the strongest month this year (both FMNEX and FMUEX each returned over 15% in ONE month).

No one can predict what 2021 will bring

However, if we look back at the past market declines there is reason for optimism. The crash of 1987 (Black Monday) was also a very sudden market decline, like this March. Five years later from that decline, a balanced portfolio of 60% stocks and 40% bonds was up 76%. Five years after the Great Recession crash (Sept 2008), that same portfolio was up 47%.  For those who weather the storm, many times there are strong returns on the other side.

We hope to see you at our 2021 events. Please contact us at any time with questions or concerns.

Breaking Investor Mediocraty

I wanted to give some reflection on my experiences this week as a presenter at a local financial literacy/education event.  I have been presenting in this program for several years, and year after year I do tend to see the same faces.  The audience is predominantly made up of very educated and accomplished individuals.  While presenting at this event is enjoyable, it has taken a lot of work to prepare for. 

If we look at the Dalbar QAIB study (a study that looks at investor behavior and returns), the state of the average investor is, well, sad.  Over the past 20 years, they calculate that the average investor has made less than half the return of the S&P 500.  So, even in my classes of highly educated people, there are probably some attendees that have done great, the other half have likely preformed poorly. (However, they would not admit to this).  Education and earning ability has no bearing on your investment success.

Making a change in one’s investments is a huge undertaking, both mentally and even emotionally.  All sorts of emotions come into play.  Below are a few issues that may be present in they way you are currently invested. These issues keep many investors trapped in mediocrity.

1) You are not diversified.  True diversification is rare.  And unless you can quantify it, you can’t prove you are. Can you?

2) You use active management.  This flawed philosophy has been debunked by academia.  If you are not a stock picker, your mutual fund manager probably is. Have you decided on what your Investment Philosophy is?

3) You are not disciplined.  Most investors are not. This is not a flaw! It’s part of the human condition. An advisor can help keep you focused.

4) You are taking more risk than you realize.  Unless you can tell me the standard deviation of your portfolio, you don’t even know how much risk you are taking!

5) You don’t know your costs.  You have no idea what you are paying in the form of fees, commissions, or opportunity costs.

6) You don’t know anything about the subject.  You lack even basic knowledge of investing, and are perfect prey for salesmen and women of financial “products”.  OR this lack of knowledge paralyses you from making ANY decisions. We believe an educated investor will always fare best in the end.

7) You don’t even know if you are succeeding or failing.  You don’t even know what you should be earning.  In your simple system, a positive year is a success, and a negative year is a failure.  You are failing more than you know.

If you are ready, or thinking about making a change, there are always reasons why people don’t.

1) Your current advisor is your friend.  I get that.  If you choose relationships over results that is your choice.

2) Being penny wise and pound foolish.  You think that fees are the end all and be all of successful investing.  While important, I can show you a very bad, very cheap portfolio. Cheap isn’t always everything.

3) You lack the will to make the change. You don’t have the energy to look into the situation. I know. Life can be exhausting.

4) You don’t know who to trust.  That being said, you just remain in frozen in your current state. Thankfully, there are some things we believe you can look for in an advisor to narrow down the search.

5) You have given up on the whole investing thing.  Too much money lost; and you are not playing the game anymore. While tragic, the crashes of 02 and 08 really took it’s toll on some investors.

Do these lists resonate at all with you? While a good advisor can be a tremendous asset, ultimately your investment success is dependent on no one else but you.