Stocks in the United States have done very well recently. As of the end of last month (8/31/2012) the S&P 500 is up 18.00% for the past year and 13.51% year to date.
Our minds use trends of a certain length to project forward what the markets are “doing” rather than limiting our statements to what the market “has done.” I’ve chronicled these mental errors in How to Maximize Long-Term Returns and Why We Don’t Rebalance.
Last week I analyzed the three month returns from 5/31/2012 through the end of last month 8/31/2012. Here is what I found:
11.85% Natural Resources
It is interesting to see that U.S. stocks under-performed the countries with economic freedom as well as some of the better European countries. Emerging markets, however, did not perform as well as it usually does.
We watch these trends, but we also don’t let short term fluctuations trump a good long term strategy. Rebalancing back to the asset allocation of a diversified portfolio has the best chance of boosting returns and balancing risk and return.