What Has Happened so Far in 2018

With the first half of the year completed, it is a good time to update you on the investment markets. Coming off a historically “smooth ride up” in 2017, the first half of 2018 can best be described as “choppy.” Lots of ups and downs have defined this market leading to returns in the slightly positive or slightly negative range depending on the day and the asset class.

For stocks, the U.S. market has outpaced international developed markets with emerging markets a trailing third. (This is the opposite order from 2017.) Trade tariffs and tax reform have been the primary news topics attributed to overall stock market movement. These policies may affect the economy, positively or negatively, and ultimately corporate earnings (which play a big role in driving stock returns). The day-to-day stock market movement, however, should be viewed as “noise” to the long-term investor who has a plan aligned with their personal financial objectives.

Bonds can and do decrease in value (generally a much tighter range than stocks) as they have the first half of 2018. Rising interest rates have been a headwind. Here is a common question we are asked: Does it make sense to own bonds since we seem to be in a rising interest rate environment? We believe it does for several reasons.

  1. Interest rates have been predicted to increase for almost a decade, and until now, have not had any material increase.
  2. Higher interest rates may be a short-term headwind but are needed for higher rates of return going forward. Timing this cycle is difficult as shown in point #1.
  3. Over the last 3 years, bonds have returned more than cash.
  4. We primarily own bonds for stability so we lean toward higher quality, shorter-term bonds than the overall market. These types of bonds are more suited for a rising interest rate environment but regardless, we want stocks to drive portfolio growth and allow bonds to provide stability.

As always, please contact us with any questions.

One Degree Advisors

Talk with us about your portfolio or financial plan here: Talk with an advisor

More Reading: Volatility. Just What the Doctor Ordered

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