2016 End of Year Review

A lot can happen in one year…

2016 was no exception. It may have felt like it had more downs than ups, but hey, you made it through. And if you can make it through 2016 then you can make it through any year.

This year was packed with election prognosticating, Britain Brexiting Europe, and doomsday predictions in China. It also had the potential to be a HORRIBLE year for the markets. Turns out it wasn’t. Nonetheless, it would’ve been exhausting had you actually paid attention to the markets day by day.

Still, we thought it’d be fun to a quick once-over of last year’s stressors… these are events that threw the average investor for a loop. Luckily, you’re not an average investor. We can tell because you’re actually reading this!

So… what happened to stocks in 2016?

CNBCDow has worst four-day start to a year on recordMatt ClinchWednesday, 13 Jan 2016 | 9:40 AM

According to the financial media, the world almost ended last January with major market indexes taking quite a hit. Jim Cramer was running around with what hair he has left lit on fire, screaming “apocalypse now!!”

CNBCS&P will plunge 75% on China deflation: SocGen bearMatt ClinchWednesday, 13 Jan 2016 | 9:40 AM

A CNBC story quoted a French banker saying that the S&P 500 index would drop 75% in 2016.

CNBCThis Dow rally will end March 23: AnalystKalyeena MakortoffTuesday, 16 Feb 2016 | 4:05 AM

As the dip began to turn into a recovery by mid-February, another market “prophet” said it would hit its high specifically on March 23rd right after lunch, and then shoot straight down. That’s right, after lunch. Not before. Definitely not before! Wasn’t it the Lehman brothers who first said, “the market can’t move until I finish my cobb salad”? All this silliness goes to show that it must have been a stressful time for those investors going it alone.

But… Should you have paid attention?

stock ticker

The media loves harping on these “armageddon” scenarios… because, ya know, THIS TIME it really matters. Or does it? Fact of the matter is, this kind of thing is completely normal. On average, the market drops 5% or more three times per year and has a full 10% correction (finance speak for market hype coming back down to earth) at least once per year. Sure, that’s an average, but if you’re investing for the long term, it’s all about averages over time.

MarketWatchUnderstanding performance: The S&P 500 IndexPaul A. MerrimanWednesday, 18 Feb 2015 | 8:26 AM

On the other hand, markets have gone up 10% on average over a longer period of time. We don’t want to bore you with the idea of efficient markets and why it’s harder than it sounds to “beat the market”, but suffice it to say, the smart money is in it for the long term and laughs in the face of the doomsaying financial media.

search for 'what's the european union'

Speaking of financial front pages inspiring fear: Brexit. The media had a hay day. Guessing you remember this one, even if the Brits didn’t quite know what was happening at the time. According to the Google, an alarming number of Brits spent June 24th asking the Google machine, “um, what’s the European Union?”

Rolling Risk Clouds for stocks ahead

At the same time, CNBC had the following three stories above the fold on their homepage… it encapsulates the Brexit confusion pretty well. The first headline shows the doomsday to come with rolling clouds of risk. Freaky, right? A little too reminiscent of Voldemort for our comfort…

CNBCWhy the UK’s exit could take 10 years-and what you should do about itJeff CoxFriday, 24 Jun 2016 | 12:32 PM

Let’s move down to “Why the UK’s exit could take 10 years-and what you should do about it.” Wait. What? We were just freaking out. The world’s going to end because of Brexit… but not for another ten years? You were just getting ready to go sell everything. Now you’re not sure how to time it.

CNBCHow to protect your 401(k) from the Brexit falloutBryan BorykowskiSaturday, 25 Jun 2016 | 5:20 AM

Ahh, luckily the next article in our trifecta will give you a step-by-step road map on how to avoid the fallout in your 401k. Thank goodness! Not so fast though. After telling you not to panic (actually good advice), the article goes on to recommend moving a portion of your 401k into gold. This gives us pause on many fronts. First, as far as ideas go, actively trading in your 401k account is up there with double-checking if gravity is working by jumping off a building. Second, most 401k plans don’t even give investors access to gold. As the millennials would say, “smh!”

As if all this wasn’t stressful enough, let’s add on one of the most contentious elections in our lifetime to the mix…

presidential debate stage

The months leading up to the election were a bit bumpy. The general opinion of the market seemed to be that a Trump win would be bad for the market and a Hillary win would be good. Why? It actually has absolutely nothing to do with politics and everything to do with the market’s disdain for uncertainty. Any potential for shake ups results in large swings in either direction. Stocks skyrocketed after Hillary won the first debate and again after the video regarding The Donald’s “locker room banter” convo with an Access Hollywood host was released. Then, when things turned bad for Hillary after catching yet another email debacle, the market went south along with her polling numbers.

Donald Trump and Hillary Clinton

Overall, if Trump was doing well, the market wasn’t. If Hillary was doing well, the market prospered alongside her. This way of looking at the world was drilled into our heads. Everyone agreed when it came to the stock market: Hillary good. Trump bad. But then November happened…

Trump Thank You Tour

Whatever your opinion about the outcome, this was a surprising revelation. The number of pundits surprised by Trump’s win was only outstripped by the number of pundits surprised that the market actually reacted positively. The talking heads weren’t the only ones looking around for an explanation. Many average Americans sold out of stocks because they were worried they’d lose money (remember: Hillary good, Trump bad). Wrong. Unfortunately for those folks, they lost out on some serious upward movement.

*Average return of investor who sold during breakouts and bought back in when things calmed down: – 9%

**Return of someone holding an S&P index for the whole year: + 11%

So what should you do for 2017?

Stick to the cliché of all clichés… “keep calm and carry on.”

You now have our blessing to laugh in the face of media pundits and brothers-in-law convinced that they can actually predict the future. You know better. Be nice, though. Not a deep belly laugh…just a meager, half-hearted, “good joke” chuckle and then move on without getting sucked into their vortex of conjecture.

After all the turmoil, the S&P rose about 11% in 2016, sitting comfortably near an all-time high. You may have missed out on those gains if you were one of the millions that overreacted to all the chaos by moving in and out of stocks to try to avoid losses. Whoops! 2016 was yet another great example of why it’s important to tune out all the noise when it comes to your retirement account(s). We still don’t know what the impact of the election will be long term, but remember, no one else does either. At the end of the day, it’s better to stick to your guns and avoid making decisions based on headlines and talking heads. After all, if you don’t sell you don’t lose. Thanks 2016. Lesson learned.

On behalf of all of us here at blooom, even if you don’t see fit to become a client, please take a second to think before you act when it comes to your investments in 2017. We like to laugh and have fun at blooom—finance is soooo boring—but this is serious. This is your future. Don’t let a talking head in the midst of blowing something out of proportion mess with your ability to retire someday.

Still feeling stressed about your 401k and want to give blooom a shot?

stress free 401k analysis

*Assumptions: A hypothetical lump-sum investment of $10,000 invested in the Vanguard 500 Index Fund (VFIAX) on the first trading day of 2016 (Jan. 4th). Following the initial lump sum investment on January 4th, the investor makes the decision to sell all shares and move to cash on February 11th, near the bottom of the early market correction. Investor then moves everything back to VFIAX on mid-day March 23rd, following the cited CNBC article predicting a market high at that exact moment. The investor then sells all shares of VFIAX again the day after the Brexit vote (June 24th), out of fear that the market would crash again. Invests back into VFIAX again one week later on June 30th after the Brexit dust had settled and the market had fully recovered from the associated drop. Investor then sells all of VFIAX again on November 4th, just prior to the US election, in order to avoid any potential fallout in the stock market from the results. The investor then never buys back into VFIAX for the remainder of 2016. Returns calculated based on the value of this hypothetical $10,000 investment on 12/30/2016.

**Assumptions: A hypothetical lump-sum investment of $10,000 invested in the Vanguard 500 Index Fund (VFIAX) on the first trading day of 2016 (Jan. 4th). No changes are made throughout the year. Returns are calculated based on the value of this hypothetical $10,000 investment on 12/30/2016. Value does not account for reinvested dividends throughout the year and is calculated based on the change in Net Asset Value of the fund alone.

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