A Market Perspective


There is no question that we are in a period of volatility not seen in some time.  Investors have become comfortable as the market has not corrected more than 10 percent since 2011.  However, since 1950 the market has corrected more than 10 percent 28 times.  That is an average of once every 2.29 years.  It’s very common, but it never feels good when it happens.  It’s how one reacts to the correction that will determine individual investor returns.



Source: Yahoo! Finance


The problem is, we don’t know when those corrections are going to come, how long they will last, or how sharp of a correction it will be.  One thing we do know is that these pullbacks are temporary, as the S&P 500 has risen from 16 to 1,850 since 1950.  In order to get through an inevitable bump in the road, we prepare diversified portfolios for the long-term appreciation and provide enough safe liquidity and cushion to weather through the bad times.


For example, the recent move in oil from $103 a barrel in July to a level of around $80 at the time of this writing is putting pressure on oil producers and drillers.  It has put pressure on other energy stocks (non-oil based) as it becomes a cheaper alternative to fuel.  Expanding on that further, lower oil prices affect many countries’ budgets and economies which could potentially slow US shale production as costs to produce outweigh the benefits.  Hence this is not a favorable scenario for the energy sector and those economies reliant on them. It has a negative impact on those stocks in your portfolio in those areas or sectors.



Source: NYMEX Nov14 Crude – The Wall Street Journal 10/16/2014


However, shouldn’t $80 oil lower the price of gas at the pump?  Isn’t that good for consumers, truckers, airlines and retail?  Couldn’t it also lower costs to heat homes as it puts pressure on other energy sources?  Isn’t it also going to help other areas of the world such as Europe that are reliant on importing energy?  Time will tell, but having a diversified portfolio lets one take advantage, if lower oil has positive economic effects.


How can a diversified portfolio protect against the Ebola scare?   Without being morbid and talking about hazmat suit makers or potential vaccines developed at drug companies, the biggest thing diversification can add is time for your portfolio to get through the uncertainty.  Having enough cash flow set aside in high credit fixed-income instruments and cash provides protection from selling equities in times of panic.  As somewhat of a historical proxy, the SARS scare in 2003, affected many thousands of people in Asian countries.  The region’s benchmark index the MSCI Asia Pacific index fell 12 percent from January to April at the height of the scare.  However, it did rebound and finish the year up 38 percent by December of 2003.


It also didn’t feel very good to rebalance a portfolio in the past few months and sell equities that were up sharply in 2013 and buy bonds yielding one to three percent?   However, given the move higher in equities, in most portfolios it is precisely what mathematical rebalancing called for. This unemotional mechanism allows one to sell those equities when times are good and under your own terms, rather than letting the markets or necessity dictate.


Lastly, at the time of this writing the Dow Jones Average was sitting at 16,141 on October 16th.  The Dow began the year at 16,291.  Was there this much panic on Wall Street at year-end?  Of course not, the Dow had risen more than 26% in 2013.   I bet you also forgot that in February of this year the Dow had fallen to 15,130?  Once again, these bumps are normal and every move is not the next coming of the apocalypse.  The world markets are very complex systems that are processing millions of data points second by second.  Investing in equities is a bumpy ride; it always has been and always will be.  Your seat-belt is diversification and your road map is patience and planning.



Important Disclosure Information

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz Financial.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz Financial is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz Financial’s current written disclosure statement discussing our advisory services and fees is available upon request.





Justin Vossen is an Investment Advisor and Principal at Lutz Financial. With 21+ years of relevant experience, he specializes in providing wealth management and financial planning services for high net-worth families, business owners in transition, endowments and foundations. He lives in Omaha, NE, with his wife Nicole, and children Max and Kate.

  • Financial Planning Association, Member
  • BSBA in Economics and Finance, Creighton University, Omaha, NE
  • St. Augustine Indian Mission, Board Member
  • Nebraska Elementary and Secondary School Finance Authority, Board Member
  • St. Patrick's Church, Trustee
  • Mount Michael Booster Club Board
  • Lutz Gives Back, Committee Chair
  • March of Dimes Nebraska, Past Board Member


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