2019…A Year to Remember
The 4th Quarter of 2018 seems like ancient history- and that’s a good thing! On the heels of the Bitcoin craze, a series of Fed rate hikes and mediocre first-half market performance, the US Stock Market lost 14.3% in 4Q2018, narrowly “besting” International Developed markets (as opposed to Emerging) which lost nearly 13%. Fortunately, diversification worked as intended and US bonds returned a positive 1.64% and the Global Bond Index returned nearly 1.9%. As is their job, the financial news was stirring up headlines to get viewers, fanning the flames of doubt with “US Stocks Hit Hard as Tech Worries Deepen” and “Existing Home Sales Suffer Largest Annual Drop in Four Years.” Clearly this was the selloff many had predicted, and it was with this backdrop that we reluctantly marched into 2019. But the Markets have an uncanny ability to make the greatest number of people look foolish, and it’s often times like these investors should be looking for opportunities, and the end of 2018 was indeed an opportunity. So let’s look at 2019 and remember 2019 for the wonderful year it was.
As is often the case following a negative year, (the US Markets lost over 5% in 2018), 2019 was (globally) a banner year with total US Market returns over 30%, International markets over 20% and even the US and Global Bond market’s joining in the celebration with returns of over 8.5% and 7.5% respectively. In fact, US Stocks were THE place to be in 2019; they were the tickets to Hamilton, U2 and BTS (Boomers, find the nearest Millennial and ask them) wrapped up into one beautiful gift basket!
So with 2019’s performance in the past- and hopefully some in your portfolio, what’s next? Well as any economist (or politician) will tell you, that depends. On one hand, it’s easy to see how historically low rates, accommodative Fed policy, strong job numbers and a business-supportive administration and Fiscal policy can keep this- the longest bull market in history- alive. Alternatively, isn’t it always best to sell when everything seems so rosy that it couldn’t possibly change? When unemployment is lower than average (or historically low) and the easy money has been made and toward the crest of strong 10 year annualized returns? Spoiler alert: yes…but only over shorter periods of time and not if you’re going to need to then reenter (buy back) at some point. If you’re retired or near retirement, it makes sense to use a bucket strategy (more on that here), reevaluate your risk tolerance, and potentially realize some of the gains in your portfolio, but only if the expectation is that this is a permanent or near-permanent sale as that’s the only way to stay disciplined. If you’re still in the accumulation phase, focus on what you can control and not the little gyrations (which can be years-long) in the markets. As I said in my 2nd Quarter of 2019 newsletter, choosing when to invest based on your belief of what will happen over the next couple of months or years is rarely a good strategy, and so long as your investment time horizon is sufficiently long, you’re better off in the water than you are on the beach. So come on in, the water is great!