(PUB) Investing 2016

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12 • Fund Family Shareholder Association
isn’t), but also that, having been beat-
en down, it is now ripe for recovery.
Where have I heard that before? I don’t
know if you remember the predictions
that the current decade would be a
golden one for metals, with gold mov-
ing to $5,000 per ounce. Well, we’re
now six years in, and we’re right about
where we started. Precious Metals &
Mining may have shot up 76.5% in
2009, but it wasn’t enough to recover
the prior year’s 56.0% loss, and the
fund has gone on to notch its largest
single overall loss since its May 1984
inception. In late December, the fund
was 75.9% below its May 2008 high.
Is that what you’d call a store of value?
Barring a catastrophe of global propor-
tions, I maintain my mantra that the
best investment you can make in gold
is to hang some around the neck of
someone you love.
Global Conundrum
I’ve always been a proponent of
keeping a chunk of your portfolio over-
seas, but as with our domestic stock
allocations, I think you need to be picky
OUTLOOK FROM PAGE 7 > about both who you’re trusting to invest
your money in far-flung markets and
how much you’re willing to give them.
In 2016, investors traveling into for-
eign stock markets are going to be
buffeted by continuing questions about
China’s growth prospects and the level
of trust that we can have in their report-
ing of such. And between China and
the global oil economy, the growth of
many emerging market economies will
hang in the balance. I wouldn’t be one
to jump into a fund like Emerging
Markets Stock Index or, for that mat-
ter, any of the region-specific foreign
LOOKING BACK
2015 Scorecard
A BIT MORE VOLATILITY, smaller gains and a focus on active manage-
ment all were good calls for 2015. I didn’t have lots of bad ones, but
even when I was right, you couldn’t always take it to the bank—though
active managers saved the day overseas.
As I do every year at this time, I look back and give an honest
appraisal of just how close my thinking was or how wide of the mark
I ranged when I wrote to you one year ago. You may not agree with
all of my grades, and I am sure to have made some other boneheaded
comments over the course of the year that you’ll hold me accountable
for, but usually I own up to them pretty quickly. As I’ve said before, we
can always hope that the light will finally shine through on the myriad
financial advisers, writers, pundits and glory-chasers who make wild
and wacky predictions all year long. I still seem to be one of the few
who actually fesses up on an annual basis. Last year, I gave myself two
thumbs-up and one up-and-down rating for my 2014 predictions and
comments. I looked a little better for 2015.
“The bias that…we’ll all need to be most conscious of as we enter
2015, is ‘recency bias’—the tendency to extrapolate the recent
past into the near-term future…If stocks went up, they’ll continue
to go up. If interest rates went down, they’ll continue to go down.”
After a year in which Total Stock Market returned 12.4% and
Total Bond Market returned 5.8%, I’d say 2015’s returns of
0.3% from both index funds prove the point that a good year doesn’t
necessarily lead to another one—all other things equal. While I was
right to warn about recency bias, I’ll take a ding for my next one.
“I’m expecting a bumpier ride in 2015, but I still think U.S. stocks
can gain ground during the year.”
Okay, the ride was bumpier, for sure. The Dow saw 9
daily moves of 2% or more in 2015 versus just two in
2014, three in 2013 and four in 2012. S&P volatility, as measured by
the VIX, averaged 16.7 versus 14.2 in both 2014 and 2013. But with
price losses of 2.2% for the Dow index and 0.7% for the S&P 500
index, well, I was wrong. You have to look at total returns, like the
1.2% gained by 500 Index, to see any improvement.
By the way, volatility was also up in the bond market. Over the course
of the year, the 10-year Treasury’s yield moved up or down 2% or more
from its prior-day close 109 times, which is more than all the days this
occurred in 2014 and 2013 combined.
“It’s only a question of when, not if, we’ll get a 10% correction or
more in U.S. stocks.”
For me, this was a no-brainer, though I think a lot of investors
had become so complacent about market setbacks that they
probably didn’t put too much stock in my warning. Too bad. If you were
prepared, then you didn’t panic when markets tumbled in August and
September. At its worst, the Dow was off 14.4% from its May high,
while the S&P 500 index was down 12.4%.
“Much-improved balance sheets mean there is plenty of
ammunition to continue spending, which in turn will move the
economy forward.”
You need only look at the sales of cars and light trucks to
know that the consumer was in a better frame of mind for
spending (and on sounder financial footing) in 2015 than in years
past. Automobile sales exceeded $1 trillion through November and
will almost certainly set a new record when December’s sales are
tallied up.
“It’s important to let an active portfolio manager make decisions
about where to invest and what to invest in overseas.”
Amen to that. My choice (and one I’ve stuck with for many
years), International Growth, lost 0.7% during 2015, while
Total International Stock Index fell 4.4%. In fact, a quick glance at
Vanguard’s foreign offerings shows that the active managers at
Emerging Markets Select Stock beat out Vanguard’s EM index fund,
International Explorer outpaced World ex-U.S. SmallCap Index,
and both Global Minimum Volatility and Global Equity earned more
than Total World Stock Index. Not a bad call.