Welcome to your first online quarterly letter! Sparrow Wealth Management is very excited to go paperless with our quarterly reporting and billing process. We have appreciated your cooperation as we migrated every client to our new eMoney software. Your quarterly reports and bills can now be found in the “Orion” folder in your eMoney vault. We have also moved your documents from Sharefile to eMoney. Your new and improved quarterly report includes an activity and performance summary, a list of your investment accounts, 2 pie charts that show your asset allocation, a portfolio detail report (similar to the former “holdings report”), and your fee summary. Finally, your report shows the “time weighted return” (TWR) instead of the “internal rate of return” (IRR), which we are happy to discuss in greater detail with those of you who want to dig deeper into the mysteries of financial return calculations.
Investors are half-way through 2015 and it almost seems like they are going nowhere. Fortunately, most of our clients are doing a little better than nowhere year-to-date (YTD), but it has been a pretty tepid year so far. As of June 30 the Standard & Poor’s 500 Stocks Index was up just 1.2 percent for the year. The Dow Jones Industrial Average was down by about 1 percent. Many of our clients have done better than the S&P and the Dow this year because of their diversification into foreign stocks and small stocks, but the gains are modest.
For diversified investors it almost feels like we have been treading water for one year: Back in 2014 the dollar’s strong ascent in the second half of the year wiped out most of our gains from the first half. This recent trend does not help us predict returns for the next 12 months. Markets can and often do turn on a dime. It is quite possible that 2015 could go either way for investors.
As always, the rest of the year will be determined by information we don’t yet know and in many cases haven’t even thought about. All the knowns, such as the Greek debt crisis, impending short-term interest rate increases by the Federal Reserve, OPEC’s determination to drive down oil prices, are just that: knowns. Much of what we know about these factors is already priced into the market. It will be surprise news and events in the future, both good and bad, which will affect investment performance for the rest of the year.
For that reason, we often urge investors not to form firm opinions about the markets or the economy. It is easy to do these days as a multitude of views are expressed in real time on the Internet. Some investors are prone to form opinions based on personal biases and then to look only for “evidence” on the Internet or in the news that confirms their opinion. It is humbling to remember, however, that for every opinion you have there are thousands of savvy investors who hold the opposite view. Are you so sure of what you believe that you are willing to bet your investments on that belief? It may give you pause to know that plenty of investors think you are wrong and are willing to snap up anything you sell, or are ready to sell to you anything you want to buy.
We think it is a lot simpler—and a lot safer—to act on the basic principles that have stood up to more than 30 years of academic testing: over time, the economy grows and, with it, the stock market becomes more valuable. If you invest in a diversified portfolio that reflects the makeup of the market and you hold that portfolio through short-term market fluctuations, you have a good chance of gaining value over time. Acting on judgments you make about the economy, individual investments, or market sectors will subject you to unrewarded risk and could lead to unnecessary losses. Keeping investment and trading costs down will improve your returns.
Thank you again for your patience and support as we’ve made some huge changes in our software, fee structure, and processes. These changes are leading to major efficiency gains, allowing us to lower your fees and reduce the time you spend preparing for meetings. We are also opening our doors to a wide range of clients—eliminating our asset minimums. If you have friends or family who may need financial advice, there is a very good chance that we can help them, no matter where they live or what their assets are. We are now offering a 20% discount off our “base fee” for family members of our clients. We care about you and your family, and we want to make it easy for your family members to get started on the path to financial freedom.
As always, please don’t hesitate to call or email if you want to discuss something or you’re worried about the markets—that is what we’re here for.
Enjoy the rest of your summer!
About Christopher Jones
Christopher Jones is the Founder and President of Sparrow Wealth Management, a fee-only financial planning and investment management firm. Before entering the investment field, Chris was a management consultant for Deloitte Monitor. He graduated summa cum laude from Brigham Young University with a B.S. in Economics and a minor in Business Management.