October 2018 Month In Review

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” – Winston Churchill, 1942.

Churchill’s quote came inside a speech following the victory in the Second Battle of El Alamein, a key turning point in the fight against the Axis in World War II. In this battle Allies had to form two roads in a minefield where the Axis had laid 500,000 mines. What an incredible story of bravery, guts, and grit. Churchill also quoted later, “Before Alamein we never had a victory. After Alamein, we never had a defeat.”

So why in the world is this my intro to October’s Month In Review? While the risks of investing in the markets pale in comparison to fighting in a war, especially WWII, I thought it would be a good way to remind us that sometimes investing feels like a battle. A battle with our emotions, a battle with our wits, and a battle with our portfolios. When we have a month like October we feel like every day is another walk through a minefield; where we could see a 2%, 3%, or even a 4% decline inside of one trading day. It begins to play with our psyche and causes us to question our entire long-term objectives and plans. I can’t imagine some of the second guessing that crept into the minds of the commanders of the battles in WWII.

Much like losing a battle to win a war, sometimes we lose a month to gain a year, or lose a year, to gain a 3 year return. The markets very regularly go through volatile days, months, and even years. The markets don’t think in calendar months so when you see a statement’s beginning and ending value, or a year-to-date beginning and ending value, it doesn’t necessarily tell the whole story. Where are we in the business cycle? Where are we in the economic cycle? Where’s the momentum taking the markets? Where are the oversold or overbought markets? Where’s too much pessimism? Where is too much optimism? How is the world changing? How does the economy and the market relate to each other? Answers to these questions can create a more accurate and thorough understanding of why a portfolio may be behaving the way it does, where a snapshot in time can create confusion, misunderstanding, and fear (or vice versa, it can create too much optimism, confidence, and greed). Imagine taking a picture of the Second Battle of El Alamein. I imagine there are snapshots in time that made it look like nothing was right in this world and everything was going to hell in a handbasket. Yet the Allies won that battle and it became a turning point in the entire world war.

It’s the decisions that get made in the midst of volatility that are the true determinants of your overall success in your financial plan and long-term portfolio performance. So as we move past the historically more volatile month of the year, and the most volatile time in the presidential cycle, the decisions we are making now will be what create our future returns. Yes October was painful. For those of you who look at your monthly statements it will be painful again in about a week and a half when they show up in the mail. But by the time you’ve read the statements and called your financial advisor (hopefully that’s AGH Wealth Mangement), the markets will have moved on. My expectation is that post the mid-term elections the markets will welcome more certainty and will perform somewhat status quo to their past. You will hear a lot on the news about trade, interest rates, Brexit, earnings peaking, wage pressure, and maybe soon impeachment; but remember this one fact: we are in a midterm year. If you were to buy the October low on the S&P 500 during the midterm year and hold it to the end of the year, you would be up every single time of the 18 times since World War II; the average being 10.6%.

If the markets hold close to the 9:30am CST timestamp, the S&P 500 will finish October down -6.8%, the Russell 2000 (small company stocks) will end -9.0%, MSCI ACWI ex US index (international stocks) -8.1% and our not-so-helpful safe bond market (Bloomberg Barclays US Aggregate Bond Index) -0.60%. Clearly there has been nowhere to hide – I’ll refrain from the Halloween puns.

Finally, 2018 is shaping up to be another reminder that a diversified investment portfolio will almost never look like one index, most notably the S&P 500 or Dow Jones Industrial Average. Having a globally diversified portfolio, especially in an environment when international markets are high on pessimism and low on valuations, is prudent. It’s hard to remember an environment with global markets outperformed domestic markets. However before mid-2011, it happened on a 5 year rolling return 91 out of 91 times. (Morningstar Direct™)

Hopefully this is the end of the beginning when a global portfolio pays us for diversification.

A reminder, if you have missed any of our Month-In-Reviews you can find them archived on our website at https://www.aghwealth.com/p/month-in-review.

Thank you for your trust and confidence.

Brian Gensch

LPL Financial Advisor

Vice President, AGH Wealth Management

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly. All indicies are unmanaged and may not be invested into directly. The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.