If I had told you on New Year’s Eve 2015 that over the year upcoming we would see the U.S. market’s worst start to any calendar year ever; a surprise Brexit vote that shocked the financial markets; and a President-Elect Trump, how would you have invested your money over the next twelve months? I’m guessing, a common answer might have been “sell everything and move to cash.” And yet, by doing so, you would have missed out on an 8% return from your equity allocation in 2016.
The year started with U.S. stocks posting the worst ten-day start to any year in history, and through early February World stocks had fallen more than 11% (we wrote about the rough start in an article titled This Is the Hard Part). But, as would become a recurring theme over the rest of the year, what happened next would have been hard to predict. The markets rallied sharply and finished March posting a small gain for the quarter.
Next, in early June the world’s fifth largest economy voted to leave the European Union and, as a result, threw global markets into a tailspin. The markets reacted swiftly to this historic vote, dropping more than 7% over the next couple of days. But again, in a move not many would have predicted, markets recovered the losses in less than three weeks’ time. (We published an article with our thoughts the morning after the vote titled Brexit: Keep Calm and Carry On).
And lastly, in November we had a historic election here in the U.S. as well. Many forecasters were calling for a 5-10% move down for markets should Trump win, but instead they’ve rallied since his election. (Read our post-election thoughts in Where Do We Go From Here?)
If 2016 has taught me anything, it’s the importance of humility in your investment process. Investing is hard enough, but orders of magnitude more demanding if based on predictions about the future. Accurately predicting any of the major events of 2016 would have been difficult. But, the market’s reaction to these events took most people by surprise as well. Accurately forecasting the outcome of the events alone wouldn’t be sufficient to make money, you also had to predict how the market would react.
Predictions or not, anyone managing money (whether you do it yourself or work with an advisor) should stay abreast of what’s happening in the markets and the global economy. Knowledge of financial history and current events builds the context which allows one to be a better investor going forward—even if your process doesn’t depend on prognostications. This blog is one part of our effort to continually build the context for smart investment decisions in an ever-changing world and to communicate it regularly with you.
So, thanks to everyone who’s read the Cordant blog over the last year. We hope you’ve found the content informative, useful, and, maybe, just a little bit entertaining. Here’s to wishing everyone a healthy, successful and prosperous 2017.
We added sixty articles to the blog in 2016. Below are the most popular ones as voted by you, the readers. Enjoy. And if you’re not already, don’t forget to subscribe and stick around for 2017.
MSCI ACWI Year-to-date returns as of 12.26.2016
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