Most investors have a mix of stocks and bonds in their portfolios. Stocks are there for long-term growth, whereas bonds are generally purchased for stability and income generation. This has worked out pretty well historically, as stock returns averaged over 10 percent annually since the 1920s, and bonds have yielded over 5 percent, according to Ibbotson data. A balanced portfolio of 60 percent in stocks and 40 percent in bonds has become the de facto standard for many investment portfolios, as the returns have been substantial enough to meet most investors’ returns, while keeping risk in check.
In a recent interview with CNBC, famed investor Warren Buffett marveled at the current economic environment. He not¬ed that unemployment is at multi-decade lows and the federal budget deficit is at an all-time high, yet inflation and interest rates are historically low. No economics textbook, in Buffett’s estimation, could have predicted such an environment.
The current economic expansion is now 117 months old. Looking at data that goes back to 1854, this is just shy of the record 120-month expansion that occurred from 1991 to 2001. It seems likely we’ll soon exceed the prior record, but how long can the economy continue to grow, and how long can the stock market continue its associated bull run?
Lately, the stock market has been a lot like the weather in Rochester, NY. If you don’t like it, you only have to wait three months for things to radically change. The fourth quarter of last year was one of the worst since the Great Depression. But we didn’t have to wait long for redemption. It arrived early this year, with a 13.6% gain in the first quarter (see market segment returns in the nearby graph).
Perhaps the fiercest advocate for the individual investor and shareholder rights ever to walk the planet died during the first quarter: John C. Bogle, who preferred to be called Jack by his legion of friends, founder of the Vanguard Group. Jack was best known for launching the first index mutual fund in 1976. This new approach to investing would ultimately revolutionalize the entire industry
We are in a highly regulated business, which causes a few headaches, but regulations are largely good; they offer our clients important protections. There are certain disclosures that we are required to make regularly regarding our policies and procedures.
Stocks posted their worst returns since 2008 last year. Most of the damage occurred in the fourth quarter when stocks dropped 13.5%. This was the 12th worst quarterly performance since the Great Depression.
The stock market declined by 4.4% in 2018. It was the first year stocks posted a loss since 2008. The S&P 500 rose 20% in 2017, 12% in 2016, and more than 13% annualized over the last decade. Yet, a one-year decline of 4% has caused all sorts of consternation. I admit that the peak-to-trough loss was much larger (17.5% so far), and the fourth quarter was one of the worst on record (down 13.5% in just three months).
They say all the world loves a clown. That may be true, but one thing I know that is even truer is that all the world currently hates alternative investments.
Interestingly, cash was the best performing asset class in 2018, earning 1.8%. That’s a pretty meager return, but it was better than losing money in stocks or breaking even in bonds.