It would be hard not to be concerned about the impact of the recent pullback in the market.

During these times, I recommend focusing on the 5Ps: Proper Planning Prevents Poor Performance. This phrase has always stuck with me because it relates to so many activities, including investing.

Most people I speak with do not consider themselves to be high-risk takers when it comes to investing their money. But neither do they want to miss out on the benefits of positive return on investment.

So, how do we strike a balance between risk and return? Consistently following our planning process, rather than chasing returns, is the best answer.

The basic framework for proper planning is:

  1. Define your goals as well as your risk tolerance
  2. These goals will dictate your financial plan
  3. Your plan will dictate asset allocation
  4. Your asset allocation will dictate your investment strategies
  5. Next, you must manage your behavior and expectations
  6. Refine and repeat the process as needed, but at least on a yearly basis

The key to making this process work is that you do it consistently, which may be challenging in uncertain times.

During this first quarter of 2016, I will be reviewing your goals with you and seeing how they align with your current financial plan.

2015 in Review

As we look back on the year, we can see that 2015 did not offer many investment strategies to cheer about. Most asset classes were negative or flat. Although everyone would prefer to see annual returns of 7% to 10% every year, we know that this is not sustainable.

For example, from 2005 to 2014 the S&P 500 averaged 7.7%, but the worst calendar year was 2008 at -37% and best calendar year was 2009 at 26%.

The US Plow Horse Economy

Although the US continues to produce positive economic data, it is not as positive as most would like. Economist, Brian Wesbury, refers to the US as a “plow horse economy.” Overall growth remains slow and in low single digits, but consumer spending continues to drive the US economy.

Although unemployment remains low at 5%, there continues to be a debate about exactly who this figure includes.

There is a great article in the Wall Street Journal that dives deeper into the unemployment numbers. (WSJ Article Unemployment)

Although there was a lot of hype surrounding the Federal Reserve’s decision to raise interest rates, these rates still remain relatively low.


China, China, China

China grabbed a lot of financial headlines in 2015.

It has grown into the second largest economy by transforming itself into a manufacturing and export juggernaut. With its economy growing at a double-digit rate, China also needed to cultivate internal demand and build a strong middle class.

Concerns about the sustainability of double-digit growth rose while China’s stock market heated up too fast. The Shanghai Exchange ballooned more than 100% in less than a year, a rate impossible to sustain. Since then, the Chinese stock market has retreated and remains choppy as China grows into managing its new economy.

Part of this new economy includes 200-300 million middle-class citizens, receiving better education, better healthcare, and an overall better quality of life with more money to spend.

China has also managed to crackdown on corruption. This trend has also gained traction in other emerging markets, such as Brazil.

China continues to be a major economic player in manufacturing and exports, but in all likelihood it will not see the growth rates it has experienced in the recent past.

Overall, China is becoming a stronger and more sophisticated global power. Recently its yuan was named a reserve basket currency by the International Monetary Fund. But with all this development comes a price: slower growth, choppy markets, and more influence on how the world economy works.

Oil Supply Boom

The other major story of 2015 was oil. Oil prices plummeted as supply saturated the market. But even at these prices and supply levels, Saudi Arabia continues to drill for oil and take on debt to maintain both its economic and political structure.

Yet no one ever seems to be content about the price of oil because it is a two-way street. Falling oil prices help the consumer save money at the pump but hurt the profits of drillers and related economies.

Moving Forward

In 2016, concerns about global demand and geopolitical risks will remain. But I remain cautiously optimistic as economic data continues to be acceptable and companies continue to innovate and maintain profitability.

I look forward to continuing to serve you and your family in this new year, working together toward achieving your life goals. Thank you for your continued support. I am sincerely grateful for the introductions and referrals you have granted me in the past year as well.