2014 was an extremely challenging year in managing a diversified portfolio. In the end, US equities delivered superior returns compared to most other investment opportunities. Extreme volatility returned to the capital markets during the entire 2nd half of the year, and in particular, during the fourth quarter which included minor corrections in early October and early December followed by strong relief rallies during the months of November and late December. A huge draw down in the global price of oil was the main culprit, responsible for the ensuing market volatility which was further exasperated by weak foreign currencies. An accommodative Federal Reserve also played a role in the appreciation of non-commodity assets.
As published in the Holiday 2014 Edition of NJ Lifestyle
Much is written in the investment world about active vs. passive investing. It probably makes sense to define both before continuing to address the argument for one over the other.
Passive investing (also called passive management) is a financial strategy in which an investor (or a fund manager) invests in accordance with a pre-determined strategy that doesn’t entail any forecasting (either market timing or stock selection for example). The idea is to minimize investing fees and to avoid the adverse consequences of failing to correctly anticipate the future. The most popular method is to mimic the performance of an externally specified index. Active investing is just the opposite.
Equity Market Overview
The 3rd quarter of 2014 trended in monthly directional movements both upward and downward but at the end of the day (quarter) major US indices were little changed from that of the end of the prior quarter. A July selloff followed by a steady August rally and a mixed September left major stock indexes just slightly up from where they were at the end of the June. Year to date, the DJIA is only up 2.81% while the broader S&P has advanced by more than double that mark at 6.70%.