2014 marked another good year for the stock market. With a 13.7% gain including dividends, the S&P 500 finished in positive territory for the sixth year in a row. The market never goes up in a straight line and 2014 was no different. Several major geopolitical events including Ebola, ISIS, plummeting oil prices and the Russian invasion of Ukraine caused volatility during the year. In fact, the S&P 500 fell 7.2% from its September 18 peak before bouncing back in late October and November. Here’s a chart of the S&P 500’s 2014.
As you can see, those who were able to ride out the market’s ups and downs were rewarded. 2014 was a great example of how the stock market works over the long term. Investors willing to ride out the inevitable ups and downs are rewarded with the inherent growth of quality companies and the appreciation that is required to fund the goals that are most important to them. Often sticking with the market is easier said than done. Having the fortitude to maintain ones portfolio during times of market volatility is tough – we all know that by now. Therefore, it’s important to make sure that your portfolio contains enough stock exposure to ensure that you are on track to accomplish your goals but not so much that you aren’t able to maintain it during times of volatility.
No one knows what 2015 has in store for the stock market but we can be sure that there will be more volatility as the Federal Reserve contemplates raising short term interest rates, Europe struggles with potential deflation, oil prices continue to fluctuate and growth in the Chinese economy faces headwinds. Not to mention events that aren’t yet on our radar screen.
To revisit an analogy we use often, think of your portfolio as a vehicle to get you from point A to point B. The stock in your portfolio is the engine powering the vehicle . The bonds are the shock absorber cushioning your ride as you drive over the inevitable bumps in the road.
Do you know how much of your portfolio is invested in the stocks? Now would be a great time to review your investment portfolio to make sure that you are driving a vehicle that has the power to get you where you want to go but also the comfort to ensure that you can survive the trip.
Let us know if we can help.