Given the fact that we just closed the door on a quarter, year, AND a decade, we have a special “Decade” edition of the PastCast for you this time around. Looking back on the last ten years and how far the market has come, it’s easy for the climate we’re experiencing today to cloud the reality that was anything but sunshine and rainbows at times throughout the 2010s. And as always, there are some great lessons to be learned through it all.
If you were one of the few that held strong through all the ups AND downs, the last ten years ended up being one of the best times ever to be an investor.
Here are some of the highlights from the last 10 years. (If you’re in a rush.)
Globally diversified 80/20 portfolio performance: +151%
US stock market performance: +248%
Number of times US stocks hit new All-Time Highs
2010-2019: Over 250 (34 times in 2019 alone)
- 2010: 0
- 2011: 0
- 2012: 0
- 2013: 45
- 2014: 56
- 2015: 12
- 2016: 22
- 2017: 67
- 2018: 21
- 2019: 34
Number of Recessions
- 2000-2009: 2 (including two stock market crashes of nearly 50% each)
- 2010-2019: 0 (First time any decade has not had a single US recession since 1850)
- January 2010: 9.8% (Beginning of recovery from the 2008-09 financial crisis)
- January 2020: 3.5% (lowest since 1969)
- December 2009: $2.60/gal
- December 2019: $2.55/gal
And now for the long(er) version…
Year-End Review: 2019 Highlights
The year began and ended with quite a bang. After what seemed to many investors at the time to be the beginning of the next big prolonged downturn, crash, recession, or whatever panic-inducing buzzword could draw the most clicks, 2019 saw the quick and robust reversal of a nearly 20% pullback that ended the previous year (2018).
Despite continued global concerns over international trade, Brexit, shifting geopolitical tensions, the longest US government shutdown in history, an inverted yield curve (huh?), and various political scandals, the beginning quarter of 2019 ended up as the best for stocks since 1998. And in case we haven’t reminded you enough already, that was immediately following what ended up being the worst December (Dec 2018) for stocks since the Great Depression.
The middle of the second quarter saw another moment of panic that led to the worst May for stocks since 2010. This was mainly attributed to concerns with newly proposed tariffs in the trade war with China, a lack of progress in those same ongoing trade negotiations with China, and rumors (which did not play out) of potential tariffs on Mexican imports as well. And then in June, stocks reached new all-time highs, ending up as the best June for stocks in more than half a century.
Global markets chugged along and continued to absorb the impact of numerous multi-day sell-offs and their following recoveries, caused by continued predictions of an imminent US recession, mixed with largely positive economic news, little to no clarity on an end to trade tensions with China, and only the 3rd impeachment of a US President in American history.
US stocks finished the year up around 30% broadly, making it the 5th best year for stocks since 1980. International stocks in developed regions largely kept pace with the US as well. And yet, the ride never felt like a smooth one, because it wasn’t. This was a great year for the stock market, but there is an important lesson to be taken from this year that no investor should lose sight of – Around HALF of the gains we saw in large US stocks in 2019 were only possible BECAUSE of the sell-off we experienced at the end of 2018.
You see, it may seem obvious now in hindsight, but without that big drop to close out 2018, the 2019 starting point would have been much higher, meaning the gains to get us to the levels we’re at today would have been far less. This illustrates perfectly why investors that are in it for the long haul actually NEED the market to decline every now and then, and ultimately SHOULD benefit from those declines, if they stick it out. When money is regularly being invested in the market, dips in stock prices have historically always provided great buying opportunities.
The 2010s: Let the good times roll!
It goes without saying at this point, that we’ve just closed out what really should have been an incredible decade for investors. US stocks saw returns of about 250% broadly from 2010 through 2019, reaching more than 250 new all-time highs in the process.
For the first time since the 1850s, the US did not have a single recession. Unemployment saw a steady decline from nearly 10% in 2010 to the lowest in a half century, at 3.5% today. AND believe it or not, gas prices actually fell slightly from 2010 to today. Remember when they were over $4/gallon?!
With US stocks leading the way, a disciplined investor with a globally diversified long-term portfolio would likely have seen their returns in the triple digit percentages. But of course, this is only true for those that managed to avoid the numerous temptations to jump in and out of the market. While hindsight tends to paint a pretty rosy picture of the last ten years, here is a reminder of just some of the chaos the market (and patient investors) had to endure to get us here:
April 2010: Greek debt downgraded to “Junk” status, following IMF (International Monetary Fund) bailout of EU sovereign debt. Global markets crashed accordingly.
May 2010 Flash Crash: In a single trading session, the Dow shed 1,000 points for it’s worst intraday decline on record (at the time).
2011 “Bear Market”: Over a 5 month period, global stocks declined significantly, with US stock indexes falling over 20%, before recovering to end the year flat. This was caused by continued concerns over European sovereign debt, the first ever downgrade of the United States’ credit rating, and fears of yet another recession in the US, following the crash of ‘08-09.
Chinese stock market crash of 2015-16: Chinese stocks crashed and spread panic throughout Asian markets.
August 2015 market sell-off: The Dow dropped by a total of 1,300 points in just a few trading days, which prompted a steeper worldwide sell-off in the following week. What began as a Chinese market event earlier in the summer had managed to wipe out $10 Trillion of global wealth just months later.
2016 Brexit vote: British citizens voted to leave the European Union, sending global stocks into a downward spiral and wiping out another $2 Trillion of global wealth over several weeks. The results of this referendum are still pending a resolution today.
Q4 2018 stock sell-off: Confusion surrounding the lack of progress in trade negotiations with China, fears of a slowing economy, and the longest government shutdown in US history, sent the S&P 500 down 20% from September to the end of the year.
So, as you can clearly see, growth of 256% in ten years involved anything but a smooth ride along the way. In fact, anyone that was paying attention would have likely seen countless predictions of another 2008-style market crash or prolonged recession every single time the market experienced a correction. Hopefully you tuned out the noise.
Food for thought…
If you had invested $10k into an S&P 500 index fund on January 1, 2010 (this would not be appropriately diversified), it would now be worth over $35k. BUT, since that initial investment, you would have seen your balance in that fund drop as low as $9,150 along that ten year journey to today. Would you have stayed the course?
This is one of the best examples of investing and hindsight bias from the last decade. It seems completely obvious today, but of course in real time, no investor knows what is truly around the corner in the short-term, and every correction or market panic will tempt any human with a pulse to abandon their strategy. It’s the fight or flight instinct that lives within all of us. But as investors, it’s the flight instinct that tends to win out all too often. In investing, our brains are often hardwired to be our own worst enemy.
So, how did you react? Did you let your instincts get the best of you? Hopefully not. And that’s exactly what we’re here for.
An important note!
Given the example above, it’s pretty important for us to mention here that we did not and would not advise someone to invest all of their retirement account(s) in an S&P 500 Index fund or any single asset class, despite the (now obvious) historical performance of that index in recent years. Therefore, comparing your own globally diversified portfolio returns to that of an index, like the S&P 500, that tracks a single asset class, is never going to be an appropriate apples-to-apples comparison.
Being invested in a diversified portfolio means you will certainly underperform any single asset class in any given year and outperform in others. Diversification simply helps an investor weather the storms that others, with all their eggs in one basket, would likely have found very challenging to stay the course through, over the last decade.
And what good is any investment strategy if you can’t stick to it through the ups AND downs, over the long haul?
While hindsight may be 20/20 (sorry, we can’t pass up the opportunity to use this pun), there is not a person living today that has a clear view of how the next decade will play out for investors. Market predictions are everywhere and it’s likely that all of them will be wrong.
Since these things cannot be predicted, we continue to take a globally diversified approach, tailored to each client’s risk tolerance and retirement goals. This is an approach that has been proven time and again to benefit those that stick to it over time. Patience and discipline have always been the keys to success and we see no reason to believe this will change in the decade ahead.
As always, a farsighted investor with a globally diversified strategy should continue to view their long-term goals with clarity and confidence, knowing that what happens today, tomorrow, or next month, whether up OR down, should have them on a proven path to reaching their goals.
Happy New Year from all of us here at blooom. We appreciate every last one of you that make our mission so worth it. Here’s to being another year closer to reaching your goals!
The information is provided for discussion purposes only and should not be considered as advice for your investments. Past performance is no guarantee of future results. Just because an investment performed well in the past does not mean it will do well going forward. And vice versa. Investments will go up and down in value based on what happens in the markets. We do not make any guarantees your investments will grow.
1. As measured by the BlackRock 80/20 Target Allocation Index I Fund
2. As measured by the Vanguard Total Stock Market Index
3. As measured by the S&P 500 Index
4. Source: https://data.bls.gov/timeseries/LNS14000000
5. Source: https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epmr_pte_nus_dpg&f=m
6. Source: https://www.morningstar.com/etfs/arcx/spy/quote —> interactive performance