A hot topic of conversation around the ‘virtual water cooler’ these days is the subject of investment performance. Or more specifically, the lack thereof. It doesn’t seem to matter who you’re with or how you’re picking your investments; from professionals to do-it-yourselfers, everyone is suffering.
Let’s look into the reasons why 2015 is being such a bugger of a year for everyone, when seemingly nothing financially dramatic has happened.
US Stocks: US stocks have performed the best of any asset class thus far this year, which is saying little. The stock market has been range-bound since February and the net gain for the S&P 500 Index is hovering around +/- 2%, depending upon which day of the week you look at it. For all intents and purposes, it’s unchanged for the year.
International Stocks: European stocks have done well if your investments are Euro-based. Your actual performance would not reflect this as it’s based in dollars. Since the US dollar has strengthened considerably so far this year, dollar denominated funds have fared very poorly. Greek debt resolution also played a large role in the big fluctuation of these stocks. Good for the cost of European vacations, bad for American investors.
Emerging Market Stocks: Emerging market stocks continue their slippery descent: These economies have been largely affected by the considerable weakness of Chinese and Russian economies. The hopes of recovery that was anticipated before May this year has been dashed and now they are at the lowest level in the last 52 weeks.
Real Estate: Real estate based investments are highly sensitive to interest rates and investors have dumped the stocks since their high in March. They recently recovered from their lows because the interest rate scare has momentarily subsided. It’s questionable as to whether the recovery in these stocks will hold.
Long Term Bonds: After a very rough start to the year, long term bonds’ recent rally has been based on weak economic growth (GDP) and a not robust enough job market (too many temporary workers, stalled wage growth and record low participation rate). Apparently markets are adjusting to the effect of an upcoming interest rate increase.
Since basic investment tenets and asset allocation strategies all recommend that investors have various combinations of most, if not all of the above asset classes, picking a winning portfolio this year has been akin to picking a center for your basketball team and all of your choices are 4′ 11″.