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Fourth Quarter 2015

2015 – A Look Back

As we move into a new year, a review of the major market themes of 2015 is helpful. The U.S. stock market, as measured by the DJIA or S&P 500, essentially ended the year where it began (without dividends reinvested). The market was extremely volatile the second half and large companies outperformed small ones. Actually, through the end of November, eight companies: Amazon, Google, Facebook, Microsoft, GE, Apple, Disney and Home Depot have combined for all of the performance of the S&P last year. Without those, the market would have been negative. The top stock in 2015 was ranked 430 out of 500 in 2014 and actually lost 7% that year. This is a very narrow list of leaders, some of which are trading at very high (some think unsustainable) valuations. If a manager chose to underweight some of them, performance would be quite different than the index for 2015. Other big news, emerging markets (China) and commodities (oil) struggled. Outside of the U.S. the strength of the dollar lowered returns for U.S. investors in international developed markets like Europe and the UK. Despite all predictions of a collapse in the bond market when the Fed raised interest rates for the first time in nine years, fixed income markets (except high yields) ended the year flat, as safe havens are still a place investors put money during volatile times. The high yield bond markets suffered due to weakness in the energy sector, as oil prices dropped 30% to about $37 a barrel at the end of the year. Notably, in the last 50 years, the split between "up" and "down" trading days is 53% up and 47% down. In 2015, it was 47% up and 53% down. If you missed the three best gain days in 2015 you would have lost 7.1% for the year. Who do you know could pick the three best days in 2015?

Strategy for 2016

What should investors do going forward? First, let's review some of the misconceptions about diversification. Some believe that holding a diversified portfolio that is designed to fit a risk profile and growth objective is a "buy and hold" strategy and never changes or adapts to new market environments, not true! There are many opportunities to rebalance diversified portfolios, reduce exposure to different investments and take opportunities with others. They include: taking distributions, adding to accounts (like 401(k)'s or IRA's), tax loss selling, realizing gains, realigning targets/rebalancing and manager changes. However, they do not include emotionally driven decisions. Short-term needs should be set aside in cash and not subject to fluctuation nor invested for the longer term. To illustrate, see the attached chart in terms of the historical performance of individual investors. The main reason for under performance is typically getting in and out of markets.


A Vanguard study showed portfolio management strategies that have potential to add value include asset allocation and diversification, cost effectiveness, rebalancing, behavioral coaching, tax efficiency and spending strategy or withdrawal rate. Our personal experience backs this up. Individuals can rarely be in or out of the markets at the right time or perform better than a well-diversified portfolio with appropriate risk over the long-term. Since 1995, if you stayed fully invested in the S&P, your return was a positive 9.85%. If you missed the best 30 days in those 20 years' time, your return was 1.49%. Many of those days occur within two weeks of the worst days. Markets can drop significantly and turn up quickly despite "predictions" that have little to do with one's ability to grow wealth for retirement, protect against inflation, college funding or generate income. What can we control in a world that feels so unpredictable and scary? 1. Manage risk. Do not expect big returns when interest rates and risk free returns are close to zero. Hold cash for short-term needs. 2. Stay the course and invest for growth with longer term funds. Do not lose sight of inflation or rising costs like health care. 3. Manage spending rates. Be careful not to spend more than the portfolio can reasonably generate especially during market declines. Do not short change your retirement. Early retirement is more critical than later in life. 4. Save more! Do not wait to start saving as much as possible during your working years. An average 65 year-old in this country today has saved approximately $125,000! 5. Review pensions and social security. Waiting to draw can sometimes increase payments of up to 8% per year. Weigh your options before drawing early. 6. Manage taxes. Take losses against gains, take gains in low tax years and hold high income investments in tax deferred accounts when possible.

Going Forward

Weathering uncertain markets is a challenge for investors. The criteria we follow can be both opportunistic and endure over time, even during periods of market stress. It is not doing "nothing". It is sticking with a long-term plan that adjusts over time, setting aside funds for shorter-term needs, while taking into consideration the specific circumstances that should influence your investment decisions, such as sources of income and where you are in the lifecycle. 2016 has started off on a negative note as China struggles to adapt to lower growth rates and free markets they cannot control. The Middle East continues to roil with political instability. The markets have recovered significantly since 2009 and the volatility is not unexpected. We believe prudent portfolio management and a consistent strategy will continue to create wealth overtime.

Continuing Education

Our continuing education this quarter includes Tori Boswell and Sherri attending a Raymond James sponsored Portfolio Management Symposium. Nick Sheeran will be attending a retirement plan workshop on 401(k)'s, cash balance plans and the regulatory landscape. Chandler Fish is attending a meeting for administrative teams at Raymond James headquarters and Jason Guenther will be attending an investment conference on ETFs (Exchange-Traded Funds).

New Team Member

Jill Carr, CPA, joined us at the end of 2015. Jill actually worked for us several years ago and then went on to become an accountant. She worked for a large CPA firm and then the IRS before deciding to return to wealth management. Check out her bio on our website. She is focusing on portfolio management and technology as well as lending expertise in estate planning and taxation. She is looking forward to getting to know you.


Tax season is here! Review your 401(k) deferrals, IRA contributions and consider Roth IRAs. Review gifting and tax deductions. Let us know if we can be helpful with getting information or reviewing your return for planning purposes.

Happy New Year,


Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

Past performance may not be indicative of future results. Expressions of opinions are as of this date and are subject to change without notice. Any opinions are those of Sherri Stephens and not necessarily those of RJFS or Raymond James. Stephens Wealth Management Group is independent of RJFS.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected.

Diversification does not ensure a profit or guarantee against a loss. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. You should discuss any tax or legal matters with the appropriate professional.

Financial Market Update* Year-to-date change as of December 31, 2015
S&P 500 Index 1.38%
Morningstar Commodities
Broad Basket Category -23.97%
MSCI EAFE US$ (International) -0.81%
Barclay US Aggregate Bond 0.55%
*Indexes are for illustrative purposes only. One cannot invest directly in any index. Assumes dividends are reinvested.
Source: Morningstar

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Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.