Pitzl Financial was recently named as one of the Top 10 Best Financial Advisory firms in the Twin Cities. We look forward to continuing to deliver on our promise of superior financial planning and evidence-based investing for decades to come!
By Joe Pitzl on March 1, 2016
Posted in Press / Awards | Tagged Best Financial Advisors Minneapolis, Best Financial Advisors St. Paul, Best Financial Advisors Twin Cities, top financial advisors Minneapolis, Top Financial Advisors St. Paul, Top Financial Advisors Twin Cities
By Joe Pitzl on January 16, 2016
Every four years, we get a lot of the same questions about elections and the stock market. In one form or another, people are generally asking how the market performs during election years.
The graph at the right shows average market performance for each year of a presidential term. As such, the market will grow at 6% this year, right?
To see how well the average returns stack up to reality, let’s review the S&P 500’s performance from the last two Presidential cycles.
2008: -37.00% Election year
2009: 26.46% Post-election year
2010: 15.06% Mid-term year
2011: 2.11% Pre-election year
2012: 16.00% Election year
2013: 32.39% Post-election year
2014: 13.69% Mid-term year
2015: 1.40% Pre-election year
2016: ___??? Election year
In comparing the graph and the data, the historical averages don’t tell us a lot about what we can expect from the market in a given year. While the averages tell us pre-election years are supposed to be great for investors, 2015 was the first pre-election year since 1939 that the Dow ended negative.
Averages are facts based on historical data, but are not very helpful in telling us what will happen in the short-run. In order to ensure you earn the averages over time, however, you have to live through the lulls to ensure you are in the game for the booms.
After a largely sideways year in 2015, the new year has started off horribly for global stock markets. Several news sources have pointed out that the 5% plunge in the first week of 2016 was the worst start to any year since 1928. Since then, the march downward has continued into correction territory (a decline of 10%).
Drops like this certainly do not feel good, but the way this year has started is also irrelevant in terms of guessing where the year will end. After that terrible start in 1928, the index actually ended the year with a 32% advance.
Famed investor, Shelby Davis, once claimed that “you make most of your money in a bear market, you just don’t realize it at the time.” Davis knew that down markets inevitably lead to people losing faith in the market.
For the long-term investor, downward volatility provides opportunities to buy quality stocks at bargain prices, provided you have cash / high quality bonds set aside to do so. Rest assured, you do…and that is precisely what the rebalancing process takes advantage of. However, it takes patience and time to come to fruition.
At the end of the day, we don’t know where the market will end the year. What we do know is that election years are very emotionally charged, so we expect markets, political commentary and media headlines to continue to be volatile. As always, cooler heads will prevail. Brace yourself for a volatile year, and know that we will keep a cool head throughout.
By Joe Pitzl on September 2, 2015
The last few days provided a not so subtle reminder that there is real risk investing in stocks. However, the true risk lies in how you react to the pit that formed in your stomach as global markets dropped.
You see, that pit is our body’s biological response to fear. We are wired to seek safety when we feel threatened. As abruptly as global markets dropped the last few days, it is normal to feel threatened.
While that reaction saves us in many aspects of life, it is one if the primary causes of the Behavior Gap we talk about so frequently, and that we are seeking to avoid with our investment philosophy. The proper response to these movements is already set in writing within the pages of your Investment Policy Statement.
The other common cause is a desire for greater returns than your risk profile can handle. Over the last 6-12 months, many of you have asked about increasing your exposure to stocks given their excellent performance the prior 5 years and the agonizingly low interest rates on bonds in today’s environment. Let the last few weeks be exhibit A for why we stand firm and resist those calls to change the risk composition of the portfolio, in good times and in bad. You can’t buy last year’s returns.
In reality, markets drops like this are more common than most people realize. While these drops generally do not occur over the course of a couple days, they happen quite regularly. We have not experienced a drop off this magnitude since 2011, so we start to think this is rare. In reality, we were overdue.
The market needs an occasional shock. It is healthy. In recent years, the amount of leverage in the market has grown significantly as traders have ignored the lessons from 2008. Shocks like this help flush out that leverage and bring it back down to more reasonable levels. They also remind investors there is risk in investing, and managing the risk level of your portfolio is far more important than picking the perfect investments or beating / matching the returns of an arbitrary index, whether that is the S&P 500 or the Dow.
Today, the underlying economic situation is significantly better than 2008. And remember that your portfolio is built with the most academically sound principles available. It is designed not only to survive these shocks, but to thrive as we emerge on the other side if them.
We are in the process of rebalancing portfolios that have seen its stock allocation drop outside of our targets. However, in the midst of this drop, many portfolios have not even deviated enough to warrant a rebalance. We will keep you posted as it happens.