The Only Sure Bet for 2016 Markets: Expect the Unexpected

The markets are off to a rough start in 2016, which makes many investors understandably nervous. Truepoint’s Martha Strebinger has provided an overview of the current market mega-trends. But it’s worth reiterating that the unexpected is always to be expected when it comes to 21st-century financial markets.  And with every twist and turn in the tale, the value of having a highly rational, disciplined and evidence-based approach to investing becomes clearer.

 A few recent articles help explain why. Jason Zweig, a commentator whose perspective we appreciate, describes the emotional reality of modern investing. 

"All investors have a narrative in their head, a set of facts and beliefs they select to make sense of the world. The simpler that story is, the more likely you are to feel you are in control and the more confident you will be that your investment decisions are sound. But when a simple story is refuted by new facts, your sense of control can be shattered."

It’s hard not to feel nervous or afraid when China’s stock market drops by 7% — especially when various financial media outlets make it sound like something close to the end of the world. But, if you’re playing a long game, you recognize that a bad week — even a bad quarter or year – is a fraction of your time horizon. And if you’ve mastered asset allocation, your portfolio has built-in protections against even huge surprises. We don’t wish to downplay the plunging oil prices and news out of China — it’s not good. A strategic and integrated approach to wealth management, financial planning and investing can minimize the impacts of market turbulence in all its forms. As Zweig concludes:

"To be a long-term investor means bracing yourself for the possibility of even more short-term shocks than usual."

The endless financial prognostications that happen as the calendar turns present the illusion that market performance can be predicted with any certainty over a calendar year. This article clarifies why that’s impossible and why only “One Market Prediction Is Sure: Wall Street Will Be Wrong.” 

“Although everyone would like to know where the current gyrations will take us, the unpleasant truth is that there is simply no reliable way to foretell the short-term path of the market."

And if you can’t predict beyond guessing, why bother with predictions at all? Again, just adopt the right diversification strategies for your goals, make sure that you’re not giving away performance in unnecessarily high fees and think “buy-hold-rebalance.” (We also recommend watching less CNBC!) 

Bottom line: expect the  unexpected, acknowledge the emotional component of investing and focus on an approach that helps to soften the blows of bad economic news in any one region, sector or asset class. 

Here’s hoping the rest of 2016 brings us better news!