Oak Mites, The Election And The Impact On Your Investments.Submitted by Castlebar Asset Management on November 3rd, 2016
This Autumn has been filled with fascinating conversations about ups and downs. The weather has most of us in Kansas City checking the calendar to see if it is still summer. We are still growing tomatoes in our garden in early November! Oak mites are a villain we wish would go away like creepy clowns, but the obvious elephant in the room is the election. The topic of the election is something that I have never shied away from with clients. Politics do play a role in the economy and the financial markets, but we probably overestimate its impact. This election season has more people pressing the pause button on financial decisions than any other in my 16 year professional career.
There are a larger number of people holding back on making contributions or funding accounts until we get to other side of the election. There is concern over who might get elected, what change will occur with taxes and other issues. Nearly two out of three Americans in a Wall Street Journal survey say that this election has had an impact on their investment decisions over the past 12 months. 75% of those surveyed felt the election will have a larger impact than in 2008. Many policy changes will take months if not years to play out. The real reason people are cautious is they fear they will lose money in a market sell off.
This backdrop leads to an important history lesson about letting fear and pessimism drive your investment decisions. Most people are pushing pause because they expect a pull back to happen. Something interesting happens during what people expect to be poor markets. In JP Morgan’s Guide to Retirement they crunched the numbers to show if you missed out on the best 10 days of the market from 1996 to the end of 2015 you would see your annual returns drop from 8.18% if you stayed fully invest to just 4.49%. This is a difference of $24,160 if you started out with $10,000. Now you are probably saying, Andrew I am not planning on missing out on the good days, I just think there will be some down markets and I will buy after the sell-off is over. Well six of the ten best days occurred within two weeks of the worst days. Let that sink in for a moment. The best days usually happen during lousy markets!
If you are skeptical that we cherry picked this data to make our point here is some more evidence. Being on the sidelines for the best weeks of returns going back to 1970 shows similar results. This is not missing out on the best performance week each year but the best week over the 46 year period. Missing the five best weeks will cause your annual returns to drop to 5.7% from 6.9%. Being in cash when good weeks happen can have a significant impact on your returns. Not being invested causes you to miss out on all the compounding!
While political ads and negative news cycles may have you feeling more like the oak mites are winning. I think you should focus on the awesome weather we have had this fall. Neither should make you change your investment approach. The fear of missing out on big days should be your concern opposed to suffering through down markets. If you don’t try to avoid down markets you won’t have to worry about getting passed by on the good days and weeks.
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Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your personal financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.