The S&P 500 stock index increased 12% in 2014. So, what should the prudent investor do now?
Last year, the U.S. large cap stock market defied the odds and beat the expectations of most prognosticators. Earlier last year, the S&P 500 sank below its 200-day moving average, signaling a decline to many technical analysts. But instead, the large cap stock index finished the year strong indeed.
So, does it make sense to deposit all of your money in S&P 500 stocks for 2015? Hold on … let’s examine this temptation by asking a few more questions.
Did you have confidence to place all of your money into the S&P 500 index a year ago? If not, why would this make sense for 2015?
Maybe instead you could find an investment manager who “knows” what the market will do and just follow their advice? Well, how did active managers do last year? Let’s look at some of their predictions and what actually happened:
Prediction: Many market experts predicted interest rates finally would turn up, causing bond prices to fall.
What Happened: Interest rates stayed low.
Prediction: Economists predicted that oil would increase to $95 a barrel.
What Happened: Oil plummeted to less than $50 a barrel, which was predicted by virtually no one. This sent the U.S dollar soaring.
Prediction: Active managers predicted that that they would outperform stock market averages.
What Happened: Active stock managers had their worst performance relative to the market in decades.
Be careful. Stay diversified. Do not put all your eggs in one basket just because it was last year’s best performing basket. It is not worth the risk. Remember, forecasting is difficult at best.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.