November 2014 Financial Markets Summary

We receive literally hundreds of emails every week, often more than 100 every day, that are investment related.  They come from sources to which we subscribe, from management companies with whom we do business, from companies that send out regular economic outlooks, and many others from unsolicited sources whose viewpoints are barely on the fringe.  While PDS tends to look at things from a glass half-full perspective, we know it is important to read and listen to viewpoints that are different than ours.  But, more than occasionally, we come across an article or prediction that is clearly way out there.  For example, a well-known (retired) money manager is predicting a massive U.S. recession in the next three years, with the market losing up to 30% in 2015.  At the same time, an economist known for being a perennial bear believes the U.S. will find a way to clean up the long-term financial debt it has incurred the last 10 years and that this will lead to a brighter future.

So how much influence do either of these have on our decision making?  To be honest, not very much.  Our job is not to predict what will happen in the next decade.  Heck, no one can accurately predict what might happen to the world’s markets today, let alone next year!  Rather, our job as we see it, is to help our clients achieve their long-term financial goals.  What is a realistic rate of return for them?  What is the best strategy for claiming Social Security benefits?  What documentation is important in the event something happens to a spouse or to the client?  What tax planning strategy is the most appropriate for a given year?  What investment allocation is the right one for each client, given their very different risk tolerances, long-term goals, and time horizons?  We know from experience that these questions are much more important than trying to predict what will happen with the world’s markets in any time frame.

October was, as Charles Dickens put it, the best of times and the worst of times.  At one point, the S&P 500 was down more than 7% from its previous high, but ended the month by recovering all of that loss.  Foreign stocks were even more volatile, with developed countries (EAFE) losing as much as 12% and regaining about 8%.  Both were real roller coaster rides.  So, was this the correction we have been anticipating?  True corrections are those of 10% or greater for domestic stocks, so the jury is still out on this one.  Perhaps the recovery has more to do with this being a mid-term election year.  Since 1946, stocks have rallied before the election in the second half of October, and the rally has continued the following year.  Will 2014 make it 17 in a row for the markets’ numbers in mid-term election years?  Or will this year be different?

Rather than making investment decisions based on historical technical trends or on what one writer seems so sure will happen, we prefer to discount these short-term, often event-driven headlines and instead maintain a portfolio that is consistent with each investor’s realistic goals.  Remember that today’s headlines and tomorrow’s reality are seldom the same.  Protect the money you might need to take from your portfolio over the next 3-5 years by keeping it in cash, CDs, or short-maturity bonds, despite their still-unattractive yields.  The rest of your portfolio should be invested in a truly diversified mix that matches your risk tolerance and long-term goals.

Asset Index Category Two Month 2014 YTD 2013 10-Year
S&P 500 Index – Large Companies 0.7% 9.1% 29.6% 5.9%
Dow Jones Industrials – Large Cos 1.7% 4.9% 26.4% 5.6%
S&P 400 Index – Mid-Size Companies -1.3% 5.6% 31.5% 8.9%
Russell 2000 Index – Small Companies 0.1% 0.8% 37.0% 7.2%
MSCI EAFE Index – Developed Intl -5.2% -5.1% 19.4% 2.9%
MSCI EM Index – Emerging Markets -6.6% 1.3% -4.9% 7.9%
S&P Global Natural Resources Index -10.1% -4.5% 1.5% 7.5%
London Fix Gold Price Index -9.4% -3.3% -27.3% 10.6%
Total  U.S. Bond Index 0.3% 5.1% -2.2% 4.6%
Emerging Market Bond Index -2.0% 4.5% -7.2% 7.7%
Long-Short Equity Index -1.4% 1.9% 14.6% 5.8%
U.S. Commodities Index -9.8% -5.7% -27.7% 9.8%


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only.  Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy.  It is provided with the understanding that no fiduciary relationship exists because of this report.  Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice.  PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice.  If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives.  All rights reserved.