15 Feb Sklar Capital – Market Update January 2018
2017 ended up as a successful and rewarding year for our clients. Most stock markets were up around 20% while bonds posted positive performance too, although much lower of around 3%. This is not unusual to see as bonds will generally post lower returns when stock returns are high. Last year was also unique in the fact that volatility and market pullbacks were all but nonexistent. Consistent and broad based global economic growth can be mostly responsible for this phenomenon. There is currently no major global economy that is showing disappointing economic statistics.
In addition, economic data continues to be strong in the US as more people are being put to work which translates to positivity about the consumer spending.
We expect these trends to continue for 2018, which should hopefully generate another year of positive returns. The one area to watch out for is inflation and rising interest rates. If inflation were to heat up, we could see a rapid rise in interest rates which would negatively pressure the price of bonds. We do not think this a huge risk at this time, but we are always focused on potential negatives that could adversely affect your portfolio.
One last piece of information that we think is very powerful for clients to understand is the basis of our investing philosophy. What the chart below demonstrates is that capturing only half of the stock market gains and losses produces the same if not greater returns than the being 100% invested in the market all the time. This not only reduces the volatility of your portfolio, but helps you sleep easier at night when the markets do take a fall, which is the essence of risk management.
Ron Sklar & Saxon Knight