What Difference Can a Couple of Months Make? Take a Look at Recent 12-Month Returns

What a difference a couple of months make! When looking at past 12-month returns, dropping off one bad month and adding one good month can make a huge difference (and vice versa). In the case of 2016 and 2017, January and February 2016 turned out to be down months for global stocks, whereas January and February 2017 were positive months. So dropping two bad months and adding two good months can dramatically impact 12-month returns. For example, the DFA Global Equity Fund was up 12.93% for the 12 months ending December 31, 2016. Fast-forward to February 28, 2017, and the 12-month return jumps to 26.16%—a difference of 13%, or more than double, just because of two months! We all like to see stock market values rise, but remember that stocks are volatile and sharp declines can happen at any time. We are not forecasting a stock market downturn, but it has been several years since we had a sharp and prolonged down period for stocks. Gravity has not been repealed, and patient, long-term investors are rewarded with higher returns for the short-term risks associated with stocks. Remember the 3 R’s: Risk and return are related.

Warren Buffett, one of the most successful investors of all time, recently published his annual report letter for shareholders in Berkshire Hathaway. Here are two quotes:

Buy When Others Are Fearful

During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.

Vanguard’s John Bogle Is a Hero

If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds … In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.

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One final note: We encourage you to start preparing your 2016 income tax return early. As a reminder, we posted Realized Gains and Losses Reports for your taxable [non-IRA or 401(k)] accounts to the Berno View Portal under Portfolio Reports: Tax Reports. Your TD Ameritrade Form 1099 for taxable accounts includes management fee data.

As always, please contact us with any questions, or news or comments.