2013 was a great year for U.S. stock markets and most stock investors. The Dow Jones Industrial Average ended the year with a 26.5% gain closing 2013 at 16,576.66. The S&P 500 index was up over 29% for the biggest gain since 1997.
There were some hugely under-performing sectors in 2013, metals and mining being one of the biggest losers. Gold bugs were squashed, as the gold miners ETF (GDX) dropped 53.9% in 2013 blowing up its positive performance in the years after the financial crisis and creating a -8.32% 5 year return. Prices of physical gold fell about 28% in 2013.
You wonder about the wisdom of gold miners developing extremely costly mining projects to dig up a metal that has limited practical uses and then selling it to be stored in a warehouse–hmmm. Bond investors had small declines in their portfolios with the average core bond fund down about 2%.
2013 is now history and should help those saving for retirement feel a little better about their situation, but what about 2014. Bond investors might have to get used to underperforming.
An improving economy implies an acceleration of the fed taper and a rise in interest rates. (Bond prices fall when rates go up.) Who knows about gold? An improving economy may mean increased inflation which is usually bullish for gold prices, but the potential for gold as an investment could be tarnished for a while.
That leaves us with stocks. Analysts are looking for a market correct of 5-10% then stabilization and a move to end the year higher. No one can tell when the correction will happen, but when it does it may be quick and scary and could provide a great buying opportunity. Whether the market corrects significantly or not, it is probably going to be a much more difficult year to invest in stocks than 2013.
It may be time to look for some good active managers that can take advantage of choppier markets and increased activity that we are likely to see in 2014.
Have a happy and prosperous new year!
James Mathis, managing partner of Echelon Investment Management, believes in enriching his clients’ lives by identifying, preserving and achieving their goals. Aspen partners with clients through every leg of their race ~ asset management, investment advice and retirement planning. Contact him at james.mathis@echelonim.com.
Disclaimers: The ideas presented here are for illustrative purposes only. This does not reflect the performance of any specific investment. It should not be assumed that past performance in any way relates to future results. The information herein has been derived from sources believed to be reliable, but this is not a guarantee as to the accuracy and does not purport to be a complete analysis of the security, company or industry involved. An investor should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plan. 529 plans are subject to enrollment, maintenance, administrative and management fees and expenses. Non-qualified withdrawals are subject to federal and state income tax and a 10% penalty. Please consult with your financial advisor and tax advisor to determine the strategy that best suits your individual needs.