3 Land Mines to Avoid in the Fourth Quarter
From election shockers to interest-rate increases to mutual fund capital gain distributions, how to keep a cool head when others aren't.
As 2016 winds down, most investors can reflect on what has been a decent year for their portfolios thus far. With the exception of a few disruptions, such as a Brexit vote that caught global markets off guard this summer, equity markets around the world have been remarkably placid. And despite the increasing probability of a Federal Reserve rate hike later this year, bonds have held up just fine, too. The S&P 500 has gained roughly 6.5% for the year to date through early October, while the Barclays Aggregate Index has risen by about 5%. Performance strength has been exceptionally broad-based: Every single mutual fund category, save for healthcare sector funds and the oddball bear market group, is in the black for the year to date through Oct. 11. If current conditions persist, 2016 will go down in the books as a fine, albeit pretty unexciting, year.
But that's a big if, as the fourth quarter of 2016 holds the potential for more surprises than the typical quarter. Some investors are on tenterhooks about what U.S. election results could mean for their portfolios; the possibility of rising interest rates also looms large. At the portfolio level, investors could confront unwanted capital gains distributions from their mutual funds. That's a frequent issue following and even during periods of strong performance from stocks, but it has been exacerbated in recent years by the outflows from actively managed funds into passively managed alternatives.