The January Effect...?

Investors (and the television “experts” whose job is to create hype and tension to maximize viewership) frequently look for hope in the old Wall Street adage, “as January goes, so goes the year”.

With a total return of 8.0%, the S&P 500 had the best January since 1987. This contrasts with the heart wrenching investors felt when December ended down 9.2%....the worst December since 1931!

It is no wonder investors without a long term focus and a strong understanding of their financial plan frequently panic and miss out on a large portion of the markets’ (erratic) gains by jumping out of the market after months like December, and wade back in long after a recovery has started. (For the 20 year period ending December 2017, missing only the 20 days with the biggest gains (out of 5,000+), lowered the total return by 91%)

Small cap stocks (up 10.6%) and mid cap stocks (up 10.5%) point to the reason that beyond diversification into different asset classes (stocks, bonds, real estate and alternative assets), diversification into the sub asset classes is equally important.

For some clients, a higher yield strategy is employed (every client is a snowflake....so no financial plan is identical and is customized to the client (try that with a robo-advisor or a shop with 10,000+ clients...)). With yields higher year-over-year, but still low by historic standards, we are finding better yields in alternatives and the real estate space. This strategy can be used for growth by compounding in a dollar-cost-averaging strategy, or cash flow for lifestyle maintenance. (Come in for an appointment for a better explanation....I’m lost without my whiteboard for illustrating...)

No promises, just hope and a wish the January effect holds...(Research by the Center for Financial Research & Analysis tells us that since World War II, when the January effect is in play, the market ends the year higher 83% of the time...)

Dave + Drew