2014: The Year in Review

As we wrap up yet another year of incredible progress we want to take a moment to look back over the events of this past year. Experience reminds us this exercise is crucial to maintaining a long-term perspective both personally and professionally. Let’s take a look at the predictions, the surprises, and the lessons we learned in 2014.

From record cold temperatures to the outbreak of the deadly Ebola disease, 2014 was a year of headlines. In spite of all the bad news some investors were able to see growth in their portfolios, especially those who kept a long-term perspective. For the first nine months the markets wiggled but steadily climbed higher. Then in October some bumpy volatility appeared with the Dow Jones Industrial Average dropping almost 9.9% from record high levels just a few weeks earlier. The financial pundits and forecasters started yelling fire in the theater, calling for everyone to “sell”. Those who panicked missed out on the growth we saw in the last two weeks of the month, almost an 8% increase from Oct. 16 to Nov. 1. Despite this little wiggle, the DJIA grew about 3.5% in October alone. Once again, this demonstrates the advantages of maintaining a long-term outlook, turning off the noise of the media, and sticking to your plan. The plain truth is volatility is “normal”.

On the bond front, interest rates continued to confuse and confound the prognosticators. While nearly every forecaster predicted interest rates to be higher at the end of 2014, the 10-year Treasury Bond is now hovering around 2.00%, and the 30 yr. at below 3%.

So what drove the growth we saw in the market? It certainly wasn’t the negative news headlines. In 2014 we saw:

  • Record cold temperatures that stretched much of the U.S in a long winter.
  • The Sochi Winter Olympics were followed by Russia invading and taking parts of Ukraine.
  • The Malaysian passenger aircraft went missing with over 200 passengers onboard.
  • ISIS took large areas of Iraq and Syria, and began a terrorist campaign by executing innocent American and British citizens on video.
  • Israel and Hamas continued their war with one another in Gaza.
  • An airliner was shot down over Ukraine with 298 innocent passengers on board.
  • An outbreak of Ebola brought panic and fear to the U.S. and crippled large areas of Africa.
  • Protests in Hong Kong rocked political parties after politicians announced changes on electoral reform.
  • A hack of Sony Pictures exposed employee social security numbers, private communication, upcoming movie scripts and salary information.
  • And in the last weeks of December, Islamic Terrorists attacked a school in Pakistan and a chocolate shop in Australia.

But as it often does, the bad news overshadowed the good. This year also brought us:

  • Innovations in energy production resulting in record low oil prices. This saves consumers billions, giving them the ability to save, spend or invest their savings.
  • The United States went from being an importer of oil and is on the cusp of being a net exporter due to the application of technologies and innovation. We are now able to find more oil, faster, cheaper, safer and better.
  • Apple introduced Apple Pay, which will likely change how we pay for things, solving the credit card fraud problems that plague retailers, banks and credit card companies.
  • We landed a probe on a comet. Absolutely incredible.
  • The markets challenged and broke all-time highs at several points throughout the year.
  • The government measure of unemployment rate in the U.S. continued to drop, with the largest annual job gain number since 2006.
  • The ALS Ice Bucket Challenge dominated social media and raised more than $100 million in donations in 30 days.

So as 2014 comes to a close, we look forward to the coming year. Though we don’t make predictions, but there are some things we know:

  • Americans are living longer – Odds are, for a couple who retires at age 65, at least one of the two will live until 95 on average. That means the survivor may die before 95 or well after 95. The biggest financial battle this couple has is preserving their purchasing power over their next 30, 40 or 50 years.
  • Across the entire spectrum of financial assets, only one has demonstrated income growth at a greater rate than the CPI over thirty-year time horizons: the rising dividends of great American companies and the world (according to data provided by Strategas Research Partners LLC, Morningstar, and Factset.)
  • If your money is not growing or earning more than inflation rate, you are getting poor slowly, going backward. The slow erosion of your purchasing power is what cripples investors late in life.
  • One way to potentially protect your purchasing power is to consider investing in sound companies. Historically, stocks have gone up more than bonds. Though this is no guarantee of success or protection against loss in the future.
  • Markets work: consider what is happening in the energy markets. Supply is rising faster than demand and in turn driving down prices, in spite of what a price and supply fixing cartel (OPEC) tries to do. This is good for consumers, economies and the world.
  • Generally, investors with a long-term perspective will be rewarded for their patience
  • Portfolio diversity will likely result in less overall volatility.
  • Those who try to chase performance, fads, or react to scary, misleading commercials will continue to hurt by bad behavior or distractions.
  • And finally businesses will continue to try to do things faster, better, cheaper. They will innovate, solve problems, serve the markets, make profits, pay dividends, increase those dividends and create value for their shareholders. That is capitalism and the free market system.

Regardless of what happens in 2015, we will be there to help you. From growth to preservation and everything in between, we are honored to serve and help you. Thank you for your continued trust and best wishes for a happy and prosperous year.

Steve Booren

Steve Booren

Steve started his investment career in 1978 with the NYSE investment firm EF Hutton, working in the environment of a large investment company. Desiring to provide clients with objective investment advice, he founded Prosperion Financial Advisors. Learn more about Steve here.

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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

Investing involves risk including loss of principal.

Pictures used in the video are property of their respective owners.