Low Returns May be the Result of Market Environment, Not Investment Choices

June 13, 2016

In portfolio reviews over the past few months, we’ve listened to a variety of reactions to investment returns over the past two years; most sounding similar to: “That’s it?  That’s all my portfolio returned over the past 1 or 2 years?”

It has been a frustrating couple of years for the general investing public.  Some of this may be attributed to heightened (and perhaps optimistic) expectations after a long up-trend in the US equity markets since early 2009.  Some may also be a function of what an investor believes they “need” in return to accomplish their investment objectives.  Some (and believe me, I hear this) investors are of the opinion they “deserve” a certain level of return on their money and anything less is “unacceptable”.

Warren Buffett once advised investors to not get mad at their investments; the investments don’t know you own them.  Getting mad at your selections or acting on your frustrations invites an unwanted partner to join you in the investing process – your emotions.  Ever changing and fallible, emotion-based investing has rarely done well in the long-run.

And your emotional reactions may be misplaced.  Investors of all stripes are facing some mighty headwinds, especially this year.   As mentioned, the US equity markets are well into what many market-watchers are deeming as a 6-7 year “bull market”, starting with the turnaround in March 2009 from the abysmal financial collapse in 2008.  Like trees and buildings, markets cannot go up forever – a re-footing may be needed to bring relative valuations back to attractive levels.

In addition, we have a still-slow-growing US economy with other global economies faring less well.  There is also the prospect of higher interest rates coming sometime this year (which is keeping the bond markets on edge), the slow-down in China’s economy which has affected global growth. Last year’s drop in oil prices affected markets as well. To top all of that, we also have a somewhat bizarre Presidential election year entering the main event stage next month.

All of this may point to a difficult environment for your investments to operate in.  You may indeed have a well-diversified portfolio of quality investments, but if the market sentiment is dour and those quality investments are just not in high demand, it may not be the fault of the investments.  It’s just a somber mood in the market for the moment.

This speaks to the advantages of having a longer-term outlook and a disciplined process, especially for those of you who are saving and investing for objectives years down the road, such as college for your children or retirement for yourselves.   If you don’t need this money until much later, let it be and refrain from wholesale changes to the portfolio under the guise of “making it perform” or protecting it.

 Understandably, it can be difficult.  We Americans are do-ers and winners; we like to have direction, initiative and control our destinies and outcomes.  Sometimes it just isn’t possible.  You may have a really good baseball team, but playing in a chilly rainstorm is going to have an effect on your otherwise stellar pitching, fielding and hitting.  Be patient and have confidence that better times will come again.