Questions We Face in 2016

by Matt Ahrens

A recent CNBC headline voiced the frustration that many of us felt about 2015.  It exclaimed “2015 Was the Hardest Year to Make Money in 78 Years.”  That sounds a little dramatic, but 2015 was challenging if for no other reason than we saw a return of the volatility that had been missing the last few years.  Several asset classes that are often considered a foundation piece of conservative or income-oriented portfolios (i.e., utilities, energy, high yielding stocks and bonds) experienced a disappointing year in 2015.

To begin 2016, we saw the Dow Jones Industrial Average have the worst four day start to a year in its history.  The S&P 1500 (the larger cousin to the well-known S&P 500) has performed no better.  Its average stock is down 24% from its high through January 7th.1

There are two questions that arise out of this recent volatility.  The first question:  Is this a short-lived drop or the start of a larger and longer-lasting bear market?  To gain insight on the answer to this question, please watch the short videos below:

Stock Market "Hangover' Not Likely To Last, Craig Says

Time to buy the dips?

The second question:  How can we invest our portfolios to best handle this new volatility?  For 2016 we are taking a two-pronged approach.  We recently introduced tactical strategies that historically have shown they can provide downside protection in the event a market downturn becomes more severe or prolonged.  Tactical strategies can also provide upside performance in the event the market shakes off this volatility and continues to march higher.

Second, we look at history to provide a guide for how we should be allocated in the event we see a sideways market.  Twelve months from now we may look back and notice we went up and down a lot only to end up the same place where we started.  We saw this in 2011 and again in 2015 and both of these years provide education on how we should approach 2016.

In 2015, performance was driven by a relatively small number of successful companies.  Including dividends, the S&P 500 was barely positive in 2015, but if you were in an equally-weighted S&P 500 fund (meaning every company in the S&P 500 received 0.2% of the weighting) then you would have experienced a negative return.  After talking with various institutional managers, they expect this to repeat in 2016 so we will look for growth in funds that invest in a smaller number of companies.

2011 provides us with a great educational opportunity because it shows us asset classes that can still perform in a sideways or flat market including bonds, real estate and market neutral investments.  The key thing to notice here is investments that provided yield through interest or dividends out-performed other asset classes.

If you would like to learn more about our tactical models please contact the office to schedule an appointment at your convenience.

1 “The Average Stock Is Already In A Bear Market.”  Financial Advisor Magazine.  January 7, 2016.


“Sometimes things aren't clear right away. That's where you need to be patient and persevere and see where things lead."

            Mary Pierce

“The single greatest edge an investor can have is a long-term orientation.”

            Seth Klarman

Quotes selected by the IAG Staff

“The new year stand before us, like a chapter in a book, waiting to be written.  We can help write that story by setting goals."

          Melody Beattie

“Act with a determination not to be turned aside by thoughts of the past and fears of the future.”

          Robert E. Lee


Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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