Milestones

10/10/2016

Dear Clients and Friends,

The fourth quarter seemed to arrive even faster than usual this year. Perhaps it was the summer’s relative market calm. Despite the never-ending newsfeeds, global markets mostly worked through the white noise. We even celebrated a few milestones.

Index funds: The world’s first publicly traded index mutual fund, the Vanguard 500 – turned 40 on August 31. “Happy birthday, index funds,” wrote The Wall Street Journal  columnist Jason Zweig. “[W]e should all celebrate an innovation that has cut the cost of investing by more than 90% and radically democratized the financial markets.”

In the U.S.: The triumvirate of major stock indexes (the Dow, the S&P and Nasdaq) set new, simultaneous records for closing at all-time highs in August… twice in the same week.

In the U.K.: Investors kept a nervous calm and carried on in the aftermath of the Brexit vote. While there was the usual reactionary flight from stocks to bonds, there also were relatively strong August inflows into index funds – an encouraging sign. 

Investors may or may not recall the market conditions of this time last year including the dire predictions for the year ahead. Investors most likely do not recall what triggered the turmoil at the time. However, disciplined investors were rewarded as they moved past those headlines into 2016. As we move into the fourth quarter, we expect to see continued plays on investor emotions: gloomy and giddy predictions alike tempting investment resolve. We have the U.S. elections, the newly announced Brexit timeline and Canada’s central bank suggesting retirees should plan for continued low interest rates – not to mention Deutsche Bank’s and Wells Fargo’s issues.

Then again, we also have a long history of the fourth quarter often delivering some of the markets’ best returns. As Bloomberg columnist Barry Ritholtz wrote, “Since 1970, the fourth quarter usually has been the best for equity markets.”

Will this fourth quarter follow suit? If you know us, you likely know we are asking a trick question. If you are participating in the market according to the evidence that suggests how to best manage its risks and earn its long-term rewards, the answer is: It doesn’t matter to long-term investors. However, we do understand that real market risk can generate very real concerns. As always, please let us know if you would like to discuss.  

Sincerely,

Byron E. Woodman, Jr.

President

Lee C. McGowan, CFA, CFP®

Managing Director