2014 Market Insights

Brooke Salvini |

2014 Market Insights
A Good Year for U.S. Stocks

As of the end of 2014, the S&P 500 has grown a bit more than 200% in a relatively steady climb since March 2009. For the 3rd year in a row the ascent has been made without even a modest 10% correction. Compared to history, this bull market has been unusually strong.

Are you feeling altitude sickness? Are we gazing from the summit in 2014?  What should a strategic long term investor do now?

Unfortunately short term predictions are futile. Jim Cramer from Mad Money on CNBC is an entertainer not an investment advisor. And only hindsight is 20/20.  But a strategic investor can leverage the power of diversification and rebalancing.

While U.S. stocks were performing strongly in 2014, foreign markets were not as fortunate. For the 4th year of the last 5, the U.S. outperformed foreign developed markets in 2014. And for the 3rd of the last 4 years, the U.S. out-performed emerging markets.

This divergent performance is an opportunity to rebalance portfolios. It would be a bad decision to abandon your foreign allocation as some investors may feel tempted to do, after looking at 2014 returns.

It's interesting that all investors are home country biased. The U.S. only represents 20% of world GDP and 49% of world market capitalization. Our share of the world pie has declined steady over the last 20 years. Foreign markets remain an important opportunity for diversification even if we stay U.S.centered.

As a long term investor, now is the perfect time to review the strategy you set in motion when you selected your allocation between stocks and bonds/cash. The decision as to how much to risk for growth verses how much to defend with bonds/cash is the strongest determinant of your portfolio performance: a far better choice  than trying to guess tomorrow's winners and losers.

If your strategy still fits, then welcome 2015 by rebalancing your portfolio and enjoying the benefits of diversification. 

Happy New Year!