IN 2016, the US market reached new highs and stocks in a majority of developed and emerging market countries delivered positive returns.  The year began with anxiety over China's stock market and economy, falling oil prices, a potential US recession, and negative interest rates in Japan.   US equity markets were in steep decline and had the worst start of any year on record.  The markets began improving in mid-February through midyear.  Investors also face uncertainty from the Brexit vote in June and the US election in November

Many investors may not have expected global stocks and bonds to deliver positive returns in such a tumultuous year.  This turnaround story highlights the importance  of diversifying across asset groups and regional markets, as well as staying disciplined despite uncertainty.  Although not all asset classes had positive returns, a globally diversified, cap-weighted potfolio logged attractive returns in 2016.

Consider the global markets are credible information-processing machines that incorporate news and and expectations into prices.  Investors are well served by staying the course with an asset allocation that reflects their needs, risk preferences, and objectives.  This can help investors weather uncertainty in all of its forms.  The following quote by Eugene Fama describes this view.

"There's no information in past returns of three to five years.  That's just noise.  It really takes very long periods of time, and it takes a lot of stick--to-it-iveness.  You have to really decide what your strategy is based on-long periods of returns-and then stick to it."

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