Market Recap – 3 Questions To Ask During Volatile Markets

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Market Digest – Week Ending 01/15

Volatility remained high as the January 2016 selloff continued. Emerging market stocks were down 4.6% for the week, while the S&P 500 fell 2.8% and is now flirting with correction territory. And this does have all the hallmarks of a correction, with a few news stories (i.e. China and oil prices) sparking a bout of panic selling. We discussed these events in detail in last week’s commentary, which can be found here. Since then not a lot has changed—the same stories dominate the headlines. The situation in China will be challenging, but with the Shanghai Composite Index already in bear market territory, much of the downside could be baked into asset prices. Make no mistake, 2016 is shaping up to be a volatile year. So do your best to tune out as much noise as possible and focus on long-term goals.

Weekly Returns:

S&P 500: 1,880 (-2.8%)
FTSE All-World ex-US: (-4.5%)
US 10 Year Treasury Yield: 2.03% (-0.09%)
Gold: $1,088 (-1.4%)
USD/EUR: $1.092 (+0.0%)

Major Events:

• Monday – Shire and Baxalta finally reached a $32 billion deal to create the world’s largest rare-disease drug maker.
• Monday – Fitbit fell over 12%, extending its year to date slide and placing shares well below IPO levels. The stock has been punished after announcing its new Fitbit Blaze, a watch that will face stiff competition from rival Apple.
• Tuesday – BP announced it will cut 4,000 exploration and production jobs following the decline in oil prices.
• Wednesday – Tankers pulled out of Texas and headed to Europe with the first U.S.-produced, freely traded oil in 40 years.
• Friday – Crude oil fell below $30 a barrel, hitting intraday lows not seen in 12 years.
• Friday – Wal-Mart announced it is closing 269 stores worldwide, including 154 in the United States, as it attempts to transition more of its business to e-commerce.

Our take:

It’s now officially the beginning of a new year, a time when many reflect on their current state of health and set personal diet and exercise goals. It’s also a great time to reassess the health of your investment portfolio, particularly with recent market volatility. So here are a few important questions you should ask yourself as we begin 2016:

1. What is my target asset allocation, and is my portfolio in line?

An asset allocation is a portfolio’s percentage mix of stocks, bonds, alternatives, and cash—essentially all of the liquid asset classes. The precise mix should be tailored to your specific financial situation, risk tolerance and goals. It is probably the most important driver of long-term total returns, so it’s a decision you want to get right.

2. Does my portfolio contain any concentration risks?

Concentration risks are large overweights to any one area of the market. These can include one or more economic sectors, sizes, styles, or individual stocks, among other things. They can be intentional market bets, or occur unintentionally from owning cap weighted index funds or failing to rebalance back to target weights over time. Regardless, they can present significant risk to portfolio returns, particularly if they’re in the form of single stock positions. Being a new tax year, it might just be a good time to pare these down and realize some gains.

3. What fees am I paying on my investments?

High fees present one of the single largest hurdles to investment returns over time. They can be in the form of a large advisor fee, or basic annual expenses paid on mutual funds and ETFs. Knowing which investments cost the most, and subsequently avoiding them, can make the difference between an okay retirement and a great one.

While there are many more questions to ask, these are the big three. They also happen to be the primary areas of focus of our free Investment Checkup tool on the Personal Capital Dashboard. So if you were unsure or unable to answer even one of these, it’s probably a good time to visit (or revisit) the tool to check your portfolio’s health. And while you’re in there, make sure to double check the Retirement Planner to see if any changes need to be made in the year ahead.

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Brendan Erne, CFA
Brendan Erne serves as the Portfolio Management Team Leader with Personal Capital Advisors. He has over 15 years of industry experience, spanning almost all levels of the investment process, including several years at Fisher Investments as an equity analyst covering the Technology and Telecommunications sectors. He also co-managed a large cap growth portfolio and co-authored Fisher Investments on Technology, published by John Wiley & Sons. Brendan is a CFA charterholder.
Brendan Erne, CFA

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