“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…it was the winter of despair, it was the spring of hope”. A Tale of Two Cities, 1859

Charles Dickens is widely considered one of the greatest writers of all time. As we review Q1 and look ahead to the rest of the year, the opening lines of “A Tale of Two Cities” about the parallels and differences between London and Paris in the 1800s seem to capture the theme from the investment landscape in 2016.  During the quarter we had despair and even some foolishness as February started off down almost 12%, but recovered to end slightly up, with the S&P 500 up 1.3% and Small Value up 1.7%.

Charles Dickens circa 1859

Despite the early volatility, the markets recovered, and thus it is appropriate to highlight a couple of enduring lessons from our own “Tale of Two Quarters”:

Markets rise and fall but over time the markets grow as economies and companies grow.  Historically the growth has significantly exceeded bank deposits, money markets, bonds, real estate, and most others but it does go up and down, as you must take on risk to generate a return.

Since Financial Plans are built with time horizons of 10 years or more, using multi-year time horizons to judge the performance of the investment strategy is wise. For example in the late 90s, small value stocks underperformed the S&P 500 for 5 years (1996-2001), however, if this strategy had been abandoned in 2001, short-term investors would have missed out on an additional 8.2% per year for the next 14 years! (Dimensional Fund Advisors 2001-2015)

Having a sound financial plan helps us stay on course when the inevitable storms come, so that as prudent and patient investors, we can enjoy the benefits during the growth cycles.  A recent analysis by Ben Carlson (“When Global Stocks Go On Sale”) points out that the paradox of investing is that the best times to put your money to work are often when things seem like they are never going to get better, and highlights the benefit of periodic rebalancing.

As Dickens so eloquently portrays, the citizens of London and Paris suffered different fates, with the latter descending into chaos and political revolution, and the former staying the course to be the birthplace of the Industrial Revolution.  Similarly, we also have the choice to stay on track and celebrate the “best of times” ahead.

Tax Season Reminder

Many of you may still need to make 2015 IRA or solo 401K contributions for 2015.  To ensure contributions are processed in time, please get these to our office no later than April 12th.

Thank you for allowing E|Financial Alliance to partner with you.

Mitch & Destin