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How Wall Street Got the 2012 Markets Wrong

Seth Jentner07/02/2014

A Wall Street Journal article from early 2013 described how the majority of professional investment managers got it wrong in 2012. From John Paulson’s call for a collapse in Europe to Morgan Stanley’s warning that U.S. stocks would decline, Wall Street got little right in its predictions for 2012.

In spite of the overwhelming historical evidence that shows how difficult it is for anyone, amateurs or professionals, to predict market returns, people continue to move investments in and out of the markets. In 2012, hundreds of billions of dollars were withdrawn from stock investments, with hundreds of billions of dollars invested into fixed-income investments. So, how did that work out?

During 2012, the Dow Jones Industrial Average stock index increased by 10.2%. The Standard and Poor’s 500 stock index increased by 16%. The EAFE foreign stock index increased by 17.9%.

Yet, during the same period, the Barclay Capital U.S. Aggregate Bond index increased by only 4.2%.

We live in uncertain times. And we should be concerned. Government spending must be reduced because current levels are unsustainable.

However, in spite of these uncertainties, we must be careful we do not act foolishly with our long-term investment portfolios, trying to avoid short-term volatility or capture short-term gains.

There are literally billions of people worldwide working in millions of companies who are developing, innovating, producing and selling goods and services to people who need and want them. There is good reason to stay invested for the long term. A diversified portfolio of stocks and bonds has historically earned successful, long-term, positive investment returns.

If you want to discuss if this investment approach is a good fit for you, give me a call at 1-866-JENTNER.

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