Up, Up and Away

The markets have continued their climb in 2017 to all new heights. They’ve shrugged off any negative news or signs the economy might be slipping a bit to get there. Pretty much any broad based stock index fund around the world would have netted you gains. The increases have been very impressive and below are the returns of a few ETFs to show you the amazing climb the markets have made this year.

iShares Core S&P 500 (IVV) – 11.65%
iShares Core S&P 400 Mid-Cap (IJH) – 7.66%
iShares Core S&P 600 Small-Cap (IJR) – 4.30%
iShares Core S&P Total U.S. Stock Market – 11.21%
iShares Russell 1000 – 11.46%
iShares Russell 2000 – 6.56%
iShares Russell 3000 – 11.05%
Vanguard REIT (VNQ) – 3.22%

Vanguard FTSE All-World ex-US (VEU) – 18.14%
Vanguard FTSE Developed Markets (VEA) – 17.60%
Vanguard FTSE Emerging Markets (VWO) – 20.02%
Vanguard FTSE All-World ex-US Small-Cap (VSS) – 19.20%
Vanguard Global ex-U.S. Real Estate (VNQI) – 17.34%

First off, the S&P 500 performance has been better in 7 months than it normally is in a full year. Pretty impressive considering we had strong returns in 2016 as well. The bigger story in my opinion has been the run up in ex-US stocks. They’ve struggled over the last decade while US stocks have broken out from their their recession lows in an incredible fashion.

Even with their climb this year they are still significantly lagging US stock returns over the past decade. IVV returned 7.13% in the past 10 years versus 1.70% for VEA and 1.58% for VWO. The bright spot has been VSS which has returned 12.24% since its inception in April of 2009. Those who held onto their ex-US investments have finally begun to see some reward for their patience.

The other interesting thing to note is the meteoric rise of ETF popularity. I’ve been investing in them for nearly a decade now and I love the fact that they don’t have minimum purchase amounts or minimum investments after that. In other words, all you need in order to invest in them is enough money to buy 1 share. You also get rock bottom fees that used to be reserved for only the high roller mutual fund crowd. I guess I’m not the only one who has been attracted by these chariterisitcs.

According to etf.com, total ETF inflows for 2017 has amounted to $267.5 billion. Last year a new record was set for ETF inflows, $282 billion. We’ve met that record in just 7 months. Total ETF assets now stand at about $3 trillion. Despite all of this, ETFs are still a small part of the market. I think the commission free ETF programs at many brokers such as Fidelity, Vanguard, TD Ameritrade and Charles Schwab has helped stoke the fire if you will.

So what does the rest of the year hold for the stock market? I have no idea and nobody else does either. If they say they do, they are simply making a guess. It could turn out right or it could turn out wrong, only hindsight will tell. At the end of the day, my investments continue on as normal. I will say however, anytime the markets are at record highs, it does give me slight pause when investing more money. I’m only human after all but ignoring this concern has netted me or anyone else nice returns.

I believe in my investment strategy. I believe it is a good mix of investments and even though it could get cut in half by another recession, so be it. At that point my dividend reinvestments will go much further than they do today. I believe a steady consistent hand will win the race, just like the tortoise beat the hare. That after all is the heart of this blog post. I’m sure when first began to read this post you might have been asking yourself why I stuck it the Financial Fundamentals section. After all, this section is for explaining market basics such as P/E ratio or price to book. Why would an article that mentions the year to date returns of the market or point out the record EFT inflows not be in the news section? Simple, one of the most important financial fundamentals is perseverance. It has served investors well for decades and it has been one of the most important investment fundamentals in order to get great returns.

You have to create a portfolio that you believe in and then invest into that strategy on a regular, consistent basis. With today’s technology you can easily setup automatic investments and also have your portfolio regularly re-balanced for you. You don’t even have to look at anything, which is probably a good thing. Learning to stay the course, learning to not panic, learning perseverance will serve you well in the end.

If you look at the past history of the markets, they’ve always, eventually, gone up. Maybe not as quickly as we want and sure the down times were terrifying but they did eventually go up. The only way that you would have lost money is by selling into the panic, which is all too common. I can’t find the article again but someone did a study and found that investor returns were a forth that of the actual fund they were investing in. The reason was simple, they sold shares when they should have been buying shares.

It’s not an easy thing to do and it goes against human nature but investing is a brutal, ruthless mistress on your emotions. You have to learn perseverance and courage to withstand her onslaughts. This has always turned out well in the past and hopefully the future holds the same.

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