Q4 2019 Newsletter
By now, you’ve probably seen a few – or a few thousand – retrospectives on the past year and the past 10 years … with a few 20-year reflections thrown in.
Maybe it’s the nice, round new year number.
Maybe it’s the surprisingly strong 2019 returns, even though there was plenty of room for doubt throughout.
Or maybe it’s the wishful thinking that “2020” might finally offer us the perfect vision we’ve lacked so far.
Whatever the reason, it can be entertaining to reminisce about the year just ended, and guess at what the next 12 months may bring. But, as Jeff Sommer of The New York Times said, “It is the time of year for predictions and I’ll make one: You will be better off ignoring the Wall Street stock-market predictions for 2020.”
We couldn’t agree more. It’s natural to enjoy a few flights of fancy when one round number gives way to another. In fact, it can be a wonderful time to revisit, renew, or redirect the personal aspirations you most want to achieve in the years ahead. For that, we remain by your side, ready to advise you on your recommended financial moves every step of the way.
But your investment outcomes depend far less on reacting to one or a few years, and far more on embracing more durable insights. These are the ones that have been stress-tested across decades of market moves, and have rarely changed from one year – or even one decade – to the next.
In that context, here are three simple strategies we recommend for your 2020 investments:
1. Trust that stocks have yielded more than bonds over time. A long-term perspective suggests this has occurred annually about two-thirds of the time.
Allocate some of your investments to stocks accordingly, and don’t waver in the years that don’t deliver.
2. Trust too that stocks won’t always outperform. There’s that roughly one-third of the time that their annual returns have disappointed. And if there is a 2019 lesson to be learned, it’s that we cannot predict which years will fly or flop. We believe it’s safe to say, hardly anyone foresaw such a strong, continued U.S. stock surge around this time last year.
To combat your personal doubts in the face of financial uncertainty, remain diversified across and within stock and bond asset classes, according to your financial goals and risk tolerance.
3. Trust in the quiet power of controlling what you can, and ignoring what you cannot. David Booth, founder of Dimensional Fund Advisors, said it well recently as he reflected on his 50 years in the business: “If you’re living in fear of the next downturn, consider shifting your thinking instead of your investments.”
Lean on us as your fiduciary advisor to help you translate your ideal goals into financial plans that make sense for you, and to you, come what may in the markets.
We wish you all good things in 2020. More than that, we look forward to guiding you through whatever the year has in store, partnering with you to convert your wishes into achievements.
As always, please let us know how else we can help.
DHG Wealth Advisors
Equity markets around the globe posted positive returns in the fourth quarter. Looking at broad market indices, US equities outperformed non-US developed markets but underperformed emerging markets.
Value stocks underperformed growth stocks in all regions. Small caps outperformed large caps in the US and non-US developed markets but underperformed in emerging markets.
REIT indices underperformed equity market indices in both the US and non-US developed markets.
The Market Has No Memory
By David Booth, Executive Chairman and Founder of Dimensional Fund Advisors
I have worked in finance for over 50 years, and it seems that every January the same thing happens. Lots of folks look back at last year’s performance to draw conclusions they can use to predict what markets will do in the year to come. I don’t make predictions, but I do think it’s worth answering this question: What are the lessons from 2019 that we can apply to 2020?
Let’s go back to where we were this time last year. The words running across CNBC’s home page were, “US stocks post worst year in a decade as the S&P 500 falls more than 6% in 2018.” The Wall Street Journal summarized the state of market affairs with this headline: “U.S. Indexes Close with Worst Yearly Losses Since 2008.” Amidst gloomy predictions for 2019, I posted a video on the limitations of forecasting.
Things felt ominous. We started the year with a lot of anxious people. Some decided to get out of the market and wait for prices to go down. They thought that after 11 years, the bull market was finally on its way out. They decided to time the market.
We all know what happened. Global equity markets finished the year up more than 25%1, and fixed income gained more than 8%.2
Missing out on big growth has as much impact on a portfolio as losing that amount. How long does it take to make that kind of loss back? And how is someone who got out supposed to know when to get back in?
The lesson from 2019 is: The market has no memory. Don’t time the market in 2020. Don’t try to figure out when to get in and when to get out—you’d have to be right twice. Instead, figure out how much of your portfolio you’re comfortable investing in equities over the long-term so you can capture the ups and ride out the downs. A trusted professional can help you make this determination, as well as prepare you to stay invested during times of uncertainty.
Not enough “experts” subscribe to this point of view. They’re still trying to predict the future. You’ve probably heard the saying, “The definition of insanity is doing the same thing over and over again and expecting a different result.” I’ve been seeing people make this same mistake for 50 years.
We’ll never know when the best time to get into the market is because we can’t predict the future. And if you think about it, that makes sense. If the market’s doing its job, prices ought to be set at a level where you experience anxiety. It’s unrealistic to think the market would ever offer an obvious time to “get in.” If it did, there would be no risk and no reward.
So what should you do in 2020? Keep in mind 2019’s most important lesson (which is the same lesson from every year before): Stay a long-term investor in a broadly diversified portfolio. Reduce your anxiety by accepting the market’s inevitable ups and downs. Make sure the people advising you align with your perspective. Stop trying to time the markets, and you’ll find you have more time to do the stuff you love to do; that markets are still functioning; willing buyers and sellers continue to meet and agree upon prices at which they desire to transact. It is also important to remember that while indexing has been a great financial innovation for many, it is only one solution in a large universe of different investment options.
1Source: MSCI World Index
2Source: Bloomberg Barclays Global Aggregate Bond Index
The content in this newsletter is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. The information in this newsletter is believed to be accurate as of the time it is distributed and may become inaccurate or outdated with the passage of time. You should contact your financial advisor or CPA professional before making any tax or investment-related decision. Past performance does not guarantee future results. All investments may lose money.