a dismal stock finish to 2015, your natural conclusion
might be: Why did I bother?
you glance at the markets and stock funds in your
401(k), IRA or college fund and subtract the money you
plopped into the accounts during the year, you likely
will see a sum that looks a whole lot like where you
began 2015. Actually, you’ll be lucky if that is the
case, because many funds and the majority of stocks were
savings account or CD might have done more for your
wealth than the stock markets.
Standard & Poor’s 500 finished the year down 0.73
percent to 2,043.9.
Dow Jones industrial average suffered its worst year
since the 2008 financial crisis, declining 2.2 percent
the Nasdaq ended the year up. Its 5.7 percent gain to
5,007.4 was disappointing compared to average annual
returns of 10 percent in the S&P index.
funds weren’t comforting either. The average bond fund
investing in a broad mix declined about 2 percent during
2015. Worse, the average fund investing in U.S.
government bonds that take five to seven years to mature
gained only 0.30 percent, according to Morningstar.
a mutual fund in your portfolio was a delight, it’s
probably because your fund manager put a heaping portion
of technology stocks in, especially the darling FANG of
last year — Facebook, Amazon, Netflix and Google,
since renamed Alphabet.
were desperate to find fast-growing companies in 2015 as
the global economy slowed and companies struggled to
make sales, especially to overseas customers. FANG stood
out because those component companies were growing
significantly. As investors glommed on, Netflix was the
winner, climbing 134 percent. Amazon wasn’t far behind
at 118 percent.
while you may adore your fund manager for having the
foresight to take a bite with FANG, the smart picks of
2015 might not hold in the future, and funds that rely
on a few hot stocks can get soaked when the tide turns.
If you doubt that’s possible for beloved stocks,
consider Apple. The stock climbed 40 percent in 2014,
and then in 2015 turned into a loser as investors were
disappointed by everything from iPhone to Apple Watch
sales. The stock is down about 20 percent from its high
price in April.
might also recall that a few years ago, energy stocks
were winners as oil climbed to over $140 a barrel. Now
oil has crashed below $37 a barrel, and analysts warn
that many energy companies won’t survive. The world is
awash with oil at a time when the globe is facing
sluggish growth and is expected to stay lackluster in
2016, according to International Monetary Fund
2015, energy stocks as a group plunged 24 percent, and
individually, many fell 30 or 40 percent. The biggest
loser among them was Chesapeake Energy, with a decline
of 77 percent.
about energy are infiltrating the bond market too, where
junk bond funds have declined 4 percent on average,
according to Morningstar. Financially stressed energy
companies have been large borrowers in the high yield
— or junk bond — market, and investors worry the
companies won’t be able to repay bond investors as the
energy sector worsens.
troubled energy companies are not buying equipment, and
so industrial companies that sell equipment to them also
feel the pain. For example, Caterpillar stock has
declined 25.7 percent in 2015 as it missed out on sales
to energy companies and struggled to sell into a weak
global economy. Mutual funds that specialize in
industrial stocks lost more than 3 percent in 2015, said
energy plunge hurt unsuspecting retirees as master
limited partnerships, or MLPs, dropped 36 percent — a
shock since analysts previously claimed that pipelines
and other infrastructure in MLPs would be immune to an
energy crash. Another retiree favorite for dividends —
utility funds — lost 9 percent in 2015, according to
investors who were scared away from health care stocks
after the Affordable Care Act passed missed the sweetest
of investments in 2015. Health care funds were the
winners of 2015, with an average return of 9.5 percent.
They were lifted — in part — by biotechnology stocks
which climbed more than 12 percent.