After a down year in 2018, the outlook for stocks in 2019 was not positive. The markets had experienced an abrupt decline in the last quarter of 2018, and many thought the bull market that had begun in March of 2009 was coming to an end.
But those who stayed invested were rewarded with a surprisingly strong year across the board1, an outcome that hardly anyone would have predicted back in January 2019.
Ten years ago, investors entered the decade having just experienced the shock of the financial crisis. Hoping to fare better in the 2010s than they did in the 2000s, investors faced a barrage of negative headlines throughout most of the decade. These headlines included an unprecedented US credit rating downgrade, sovereign debt problems in Europe, negative interest rates, flattening yield curves, the Brexit vote, the 2016 US presidential election, recessions in Europe and Japan, slowing growth in China, trade wars, and geopolitical turmoil in the Middle East.
Yet, despite this backdrop, global stocks more than doubled in value from 2010–2019. $10,000 invested in global stocks, as measured by the MSCI All Country World IMI Index, at the beginning of 2010 would have grown to $23,473 by year‑end 2019.
Having come off such a strong year and decade, it is common to think about what lies ahead and how that might impact your financial situation. While we are not market forecasters or prognosticators, below we share some broad perspectives on what might be reasonable to expect going forward.
- Plan for lower returns going forward from US stocks. Coming off the dismal performance of the 2000s, US stocks produced an annualized return of 13% over the last decade. While we should expect future returns for US stocks to be positive, it’s not realistic to expect this kind of “shoot the lights out” performance for the decade ahead. Prudent investors will moderate their expectations and plan accordingly.
- Non-US stocks look like a better deal right now. Non-US stocks lagged US stocks through much of the past decade. But when we look at stocks outside of the US, stock prices are relatively lower and dividend yields are higher, especially in emerging markets. While diversifying globally is always a crucial component of a sound investment plan, a portfolio that includes non-US stocks may have the edge over a US only portfolio over the next decade.
- Value stocks will make a comeback. The spectacular performance of tech stocks like Netflix, Amazon, Apple, and Alphabet (Google’s parent company) was a defining trend of the decade. As a result, large-cap growth outperformed both large and small-cap value stocks. At some point, that trend is likely to reverse itself, and when it happens, it may happen fast.
If we learned anything from the last year and decade, it is that trying to predict how the markets will behave is a losing game. Fortunately, it’s not necessary to predict the markets in order to have a successful investment experience. Instead, we diversify and plan. And this is where we, as your fiduciary advisor, come in, helping you develop, implement and monitor flexible financial plans that make sense for you.
[ref] Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond Market ex-US (Bloomberg Barclays Global Aggregate ex-USD Bond Index [hedged to USD]). S&P data © 2019 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2019, all rights reserved. Bloomberg Barclays data provided by Bloomberg.[/ref]