Capital markets in 2016 demonstrated the wisdom of sticking to a sound portfolio allocation plan. The U.S. stock market opened with a thud, as the S&P 500 Index fell by over 8% during the first 10 days of trading — marking one of the worst starts on record. News throughout the year was mixed. Voters in the United Kingdom opted to exit the European Union, the Fed began moving toward higher interest rates, and a populist upheaval in the U.S. redefined national politics.
The S&P 500 nevertheless ended the year with a gain of 11.9%. With this in mind, we once again offer guidelines to help you avoid the distractions of breaking news and short term prophecies.
• I will understand my own circumstances and formulate an investment plan based on my needs, not in anticipation of market trends.
• I will remind myself that investing is not a form of entertainment—if I have an urge to gamble, I will go to Las Vegas.
• I will stick to my plan.
• I will not attempt to pick winning stocks.
• I will ensure that my holdings are adequately diversified within each asset class I own.
• I will focus on minimizing my investment-related costs.
• I will stay abreast of changes in investment-related tax laws.
• I will not purchase any financial instrument I do not understand.
• I will ignore those who sell products rather than provide advice.
• I will ignore market prognosticators.
• I will take full advantage of my qualified retirement plans by making the maximum allowable contributions consistent with my budget.
• I will hold my least tax-efficient assets in my tax-deferred accounts.
• I will rebalance my portfolio infrequently, but at regular intervals regardless of the current state of the markets.
• I will not allow the price I have paid for a security to influence my future investment decisions—except for tax considerations regarding capital gains and losses.
• At year end I will harvest tax losses simply and without deviating from my target portfolio allocations, by selling and buying index-type funds within the same asset class.
• I will appreciate the simplicity of the AIS approach; instead of worrying about factors that are not within my control, I will establish my plan and turn my attention to enjoying life.
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Also in This Issue:
Quarterly Review of Capital Markets
Investment Guide Updates
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow-Jones Industrials Ranked by Yield
Recommended Investment Vehicles