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What a Year for Investors

What a Year for Investors

December 31, 2019

An Incredible Year for Investors Caps off A Strong Decade

It is easy to forget, but just 12 months ago it seemed that the bottom was falling out of the stock market.  Talk of recession was all over the news.  Clients were calling me worried about their retirement plans.  The 10 year bull market was over, said the so-called experts. 

A year later, it’s a completely different story.  Lets look at some of the results for the year: 

  • The S&P 500 is up 29% for their strongest year since 2013.
  • The Morningstar US Small Cap Index is up 23.6%
  • The MSCI International Stock index is up 21.3%
  • The Vanguard Total Bond Market fund was up 8.95% for its best annual return of the decade.

Across the board, almost all investments had a very good year. 

The 2010s Were as Good as the 2000s were bad!  

The 2000s were the "Lost Decade".  Two significant recessions (2000-2003 and 2008/2009) battered stocks.  The S&P 500 was no higher on Jan 1 2010 than it was on Jan 1 2000.  Again the experts were full of doom and gloom.  The markets would continue to be rocked by huge swings, as volatility becomes the new normal - or so they said.  What actually happened?  After a decade of 0% return - the S&P 500 delivered a 10 year cumulative return of 356% from Jan 1 2010 to Dec 31, 2019.  What lessons can be learned?   How about the following: 

  • Patience is crucial to successful investing.  Market cycles sometimes play out over decades, not weeks or months, trying the patience of even the most astute investors.  
  • Don't listen to "market forecasts" - they don't have a clue
  • The best time to invest is often just when everyone is telling you it is a terrible time to invest!  

But Don’t Get Greedy! 

Stock returns have been off the charts this year, for sure.  But it is important that investors do not become complacent.  Now, while the market is riding high, is the ideal time to rebalance portfolios.  After all, if you started the year with 60% of your portfolio in stocks, it is possible that by now you have 75% in equities.  It is time to sell the big winners and buy some of the laggards – just to make sure that your investments are still invested in a manner consistent with your original plan.  Make rebalancing your Financial New Years Resolution for 2020.  (I expect we will be going this exercise for our investment management clients in the coming weeks) 

If you have been worried that your allocation is a bit too aggressive (maybe you are getting closer to retirement and need to take some risk off the table) – NOW is the time to become more conservative.  There is no better time to make a downshift in risk than after a strong bull market run.  I don’t want to suggest that stocks won’t generate positive returns in 2020 – they very well may.  The economy and employment remain strong, so markets may do well.  If your allocation is appropriate, stay the course.  But if you know you should be downshifting to a less risky portfolio anyway, you are far better off doing so in a strong market (and locking in these beautiful gains) than waiting until it collapses (and watching the gains evaporate).