We ended the year with a strong fourth quarter return for domestic equities and to a lesser extent international equities. For the last four months of the year, we didn’t see much movement in fixed income, as the markets remained quiet.
Overall, 2013 was a very good year for client portfolios, thanks to equities (stocks), which gained around 30% for the year. Fixed income (bonds) on the other hand did not help much, turning in slightly negative returns. Cash (money market funds) continued to produce almost no return, as has been the case since 2008.
Outlook and Strategy
We think there is room for stocks to continue to grow in 2014. In 2013 we had considerable negative news to worry about—closing down the government, budget concerns, the deficit, the sequester (forced reduction in government spending), new taxes, new medical care programs, and reversing the Federal Reserve program known as Quantitative Easing (QE). In spite of these and many other concerns, consumers continued to help the economy recover. Corporate earnings are good, auto sales are at record levels, the housing sector is improving, European markets are recovering, and the overall U.S. economy continues to improve.
While the stock and bond markets will continue to have bouts of strong performance similar to what we had in 2013, we will likely have sharper declines and corrections than we had simply because the market is at record levels. This does not mean that it will not continue to grow. While no one expects a repeat of the strong 2013 performance, we don’t see why the markets can’t have positive returns in 2014. As of this writing, the markets seem to be digesting the record breaking gains of 2013.
While forecasting is a fool’s game, because most of the forecasters are wrong most of the time, focusing on one’s goals is not. In fact, having a plan in place with reasonable return expectations is the best way to achieve them. Proper planning dramatically improves the odds of reaching your goals. So, it is far better to plan than it is to forecast.
Our job is to develop a plan of action so that you can achieve your goals. Part of that plan is to assess your goals, time horizon, risk tolerance, tax situation, and develop an asset allocation appropriate to meet your needs. By using a globally balanced approach to achieve reasonable returns, we help our clients plan, achieve, and live the life they want. Ideally, we can accomplish this with less volatility and better downside performance during difficult markets. This is our goal, and we do not want anyone to confuse this goal with market forecasts for 2014 and beyond. We remain focused on the goal and try to ignore the short-term volatility the markets send our way in an effort to distract us from being successful.