Just a quick snapshot of Q4 and 2015’s selected returns by segment of the market (returns are those of the segment’s representative ETF). It was a mostly flat to slightly down year with US Large Company stocks up slightly, but US Small down slightly more. Foreign Developed areas were up over 7%, but Foreign Emerging was down more (~15%). REITs were up a bit, but high-yield down a bit more. The noted exception area to the mostly flat to slightly down market was in Commodities. Led by oil (-46%), commodities in aggregate were down 28%, following their almost 19% drop in 2014
On the bright side, Q4 was mostly positive (again with the exception of Commodities). And inflation (as measured by the CPI) remains very low thanks mostly to the fall in commodity prices. The high correlation between your spending and commodity prices (esp. energy) is why we include commodities in investment portfolios. It’s ok if that portion of your portfolio falls in value if inflation is substantially lower than the 3% expectation we incorporate into most financial plans. The reverse is also true… If commodity prices rise sharply, your spending has a tendency to increase more than planned and the commodity portion of your portfolio is likely to rise along with it.
Stocks / REITs / High Yield / Commodities over the course of the year:
Bonds over the course of the year:
As a reminder, while it might not feel good, unless you are retired and no longer saving money, you are far better off with flat to down markets that rise later in life than you are with a market that moves steadily upward. It allows more investing at lower prices which results in a higher amount of total wealth assuming the same endpoint (see The Value Of Volatility). If you are retired and no longer saving, you’re likely to be in a much more conservative portfolio with lower expected returns factored into your financial plan so that the occasional down year in stocks doesn’t have a big impact on the plan overall.