This week saw continued good employment news in the US, accompanied by better housing data than many expected. In Canada, the Liberal Party won an election victory, bringing to an end a decade in power for the Conservatives. In China, economic growth for the most recent quarter came in at 6.9%. This is the slowest rate of Chinese growth in 6 years and China, once again, cut interest rates this Friday. Nonetheless, this rate of growth remains high by global standards and was a relief to those who feared a sharply weakening Chinese economy. In Europe, the European Central Bank left their accommodative policies unchanged, but hinted at more stimulus in December, which was viewed positively by markets.
At the time of writing, global stock markets, as measured by the MSCI AWCI index, have risen over 9% [SM1] from the lows we experienced in late September. This serves as a reminder of how quickly investment sentiment can swing between the emotional extremes of fear and optimism.
More importantly, we think this shows the importance of adhering to a consistent investment strategy. Those who sold stocks based on fear over the summer have missed a rally, and may still be on the sidelines. Those who have maintained a long-term strategy of remaining in the stock market, a strategy we generally advocate at FutureAdvisor, generally have seen gains and avoided the costs associated with excessive trading, which can erode savings.
Of course, a few months is a very short period to analyze any investment approach. However, this shows what we believe has been true over many decades: a diversified portfolio including stocks historically has offered attractive returns for those able to remain invested and look through temporary market gyrations.
However, dips in the market are not necessarily a reason to remain completely passive. FutureAdvisor views market volatility as an opportunity for tax loss harvesting and portfolio rebalancing, as appropriate for a clientâ€™s account. . We believe this strategy has the potential to improve both pre and post-tax returns.