The quarterly market review features performance of the global equity and fixed income markets. Looking at broad market indices, the US equity market again outperformed both developed ex US and emerging markets during the quarter. In a repeat from the third quarter, US REITs recorded the highest returns, outperforming equity markets.
Bryan was interviewed by U.S. News and World Report on his views about what investors should do in light of a looming interest rate increase by the Federal Reserve. Some of his comments are below. The full article is available at this link: http://bit.ly/1VbNixh.
"It's human nature to think this time is different," says Bryan Rogowski, founder of Rogowski Wealth Management in Bainbridge Island, Washington. "There's nothing different this time than in many other generations. If you look at Fed activity, rates are still very, very low. Even if the Fed raises rates, they will still be very, very low."
"Many people sold fixed income several years ago, thinking that the Fed was going to raise rates at any moment, and they were wrong about that timing decision," he says. "Making timing decisions over and over is really dangerous to overall wealth. It's a gambling game, and it's not worth playing. I would rather be right about a buy-and-hold strategy and a proper allocation to fixed income and equities over a client's full-time horizon, which may be five, 10, 20, 30, 40 or more years, than any one market timing decision."
Rogowski says individual investors are mistaken if they believe they can somehow outwit markets, considering all the information that is publicly available. "The market reacts instantaneously to any new information, which is always a surprise, no matter how much in hindsight we say we could have seen it coming," he says.
But when an event is widely anticipated, such as an interest-rate increase, market prices generally reflect that expectation. "So there are no actionable nuggets here to capitalize on that," Rogowski says. "We're not going to make a buck by acting on information that's in the press and publicly available, or a news release from the Federal Reserve. So we have to return to our original purpose: Achieve the highest return we can to meet our goals, with as little risk as we can take."
The Capital Markets Have Rewarded Long-Term Investors
Monthly growth of wealth ($1), 1926–2013
In US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. US Small Cap Index is the CRSP 6–10 Index; US Large Cap Index is the S&P 500 Index; Long-Term Government Bonds Index is 20-year US government bonds; Treasury Bills are One-Month US Treasury bills; Inflation is the Consumer Price Index. CRSP data provided by the Center for Research in Security Prices, The S&P data are provided by Standard & Poor’s Index Services Group. University of Chicago. Bonds, T-bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).
3rd Quarter 2014 Index Returns
Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index), US Bond Market (Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citigroup WGBI ex USA 1−30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor's Index Services Group. Russell data © Russell Investment Group 1995–2014, all rights reserved. MSCI data © MSCI 2014, all rights reserved. Barclays data provided by Barclays Bank PLC. Citigroup bond indices © 2014 by Citigroup.
World Stock Market Performance
MSCI All Country World Index with selected headlines from the 3rd quarter, 2014
These headlines are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a longer-term perspective and avoid making investment decisions based solely on the news.
Graph Source: MSCI ACWI Index. MSCI data © MSCI 2014, all rights reserved. It is not possible to invest directly in an index. Performance does not reflect the expenses associated with management of an actual portfolio. Past performance is not a guarantee of future results.
History shows that the stock market has rewarded investors, more frequently than not, who can bear the risk of stocks and stay committed through various periods of performance. The graphic below shows the historical distribution of US market returns since 1926, and that the investing glass, was more than half full. The performance years are stacked in order of return range. The graphic highlights that, over time, the market’s positive return years have outnumbered the negative return years, with positive performance more concentrated in the higher ranges of returns.
Distribution of U.S. Stock Market Returns
Bryan Rogowski is the principle and founder of Rogowski Wealth Management and a former retirement plan expert at the U.S. Government Accountability Office (GAO).