New Year, New Expectations
At New Year, many of us set goals for the coming 12 months. For some, it might be a personal goal like pursuing a new hobby, travelling more, or living healthier. Others will focus on financial goals. Whatever the target, a common element determines its success or otherwise – discipline.
We know that many New Year resolutions fail within the first month. Just as someone determined to lose weight can lose heart in the face of an all-you-can-eat buffet, an investor committed to an investment goal can find themselves wavering if January delivers a negative stock market return.
The mistakes people make in either instance are, first, to abandon discipline in the face of a short-term setback and, second, to extrapolate one month’s performance forward. In other words, just as summer barbecues are not necessarily a pointer to how you’ll dine all year, neither does January tell you much about what the full-year market return will be.
The exhibit shows monthly returns of the S&P/ASX 300 Index (total return) for each January since 1980 and compares these to the subsequent 11-month return (February to December). We can see that negative January returns were followed by positive 11-month returns two thirds of the time. What’s more, in those years when January returns were positive, the results were similar.
Regardless of what 2024 may bring, it is helpful to remember that a stumble in one month does not necessarily tell you what will happen over the year. The key in the success of any resolution is discipline.
Many happy returns!
January Return vs. Subsequent 11-Month Return of the S&P/ASX 300 Index (Total Returns), 1980–2023
This article originally appeared in Short N Sweet, a newsletter for Dimensional clients.
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