Michigan Winter Weather
Monday, January 28, 2019
If you don’t like the weather in Michigan, “just wait five minutes”. That phrase is a favorite saying in my home state of Michigan during all four seasons, especially the weeks that offer rain, snow and a random 70-degree day. It indeed is how I have felt for the last few weeks with our Michigan winter. We had very early snow before Thanksgiving of several inches with predictions that it was going to be a massive season of snow. Since that first snowfall we virtually had nothing else when it came to snow except for rain, a couple of 60-degree days, and a mild winter up until last week! Three snow days later, and the expectation that we will have two more this week has verified the old saying about Michigan weather.
Because of the weather today, many of my scheduled appointments have called to reschedule for another day. That has given me a few moments to reflect on how the last four months of market behavior has impacted many investors. The three leading equity indexes hit all-time highs during the end of September into early October. Then we had a correction of around 10% in October, a partial recovery in November with another 10% correction in December. Some financial news reporters said the month of December was the worst performance for the Dow Jones Industrials since the “Great Depression.” So, the 4th quarter resulted in almost a 20% correction in U.S. equity markets with a year-end return for the S &P 500 Index coming in at a -6.2% return based on price alone and a -4.4% return with dividends reinvested.
I had conversations with some of my clients during the 4th quarter about the ups and downs of the market. Those that had concerns were upset about how much money they had lost from the all-time highs in October, while at the same time I tried to get them to remember the returns of 2017 and to measure year to date from January 1, 2018, not the all-time highs in October. As an advisor, it is essential to make sure a client understands that successful investing takes time, patience and discipline. The equity and bond markets go up and down every day. If an investor who made in excess of 20% in 2017 is now upset because of a negative 6% return in 2018, either he or she lacks the understanding of how markets work or has been working with an advisor who has not done an excellent job of making sure an investor knows that there will be years when your returns are negative. It is a normal function of the market.
As of January 25, 2019, the S & P 500 Index is up 6.62% year to date. It is up 13.50% for the last four weeks, its three-year annual average is 13.50%, and its five-year average is 10.54%. Staying invested with your allocation when things get rocky is essential for successful long-term investing. I will end by going back to the weather. My clients who do not like the daily changes in Michigan’s climate have all become snowbirds. They decided to ignore the ups and downs of Michigan’s weather by choosing to go south for warmer weather. Staying invested when things get rough in the short term may allow you to become a snowbird someday!
1Seeking Alpha, “The Grinch Stole December’s Returns”, 1/23/2019
1Market Watch, Jan 2, 2019
1Morningstar Index Returns, 1/25/19