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It’s The Most Wonderful Time of The Year

J. Patrick Collins Jr., CFP®, EA

If you read any financial publication in January it is almost always filled with “experts” discussing their predictions for the upcoming year.  When you have observed this annual phenomenon as long as we have it is almost laughable.  The reality is almost no one gets it right.  That’s because most analysts give safe predictions that are somewhere around the long-term average return of the market:  10% a year.  When we look at the actual annual returns of the market we find this rarely occurs.

In fact from this chart we find that only 6 of the last 93 years (about 6% of the time) the stock market’s annual return comes between +/- 2% of its long-term average.  So whenever you hear some analyst predicting the market to return 10% this year (or somewhere near that percentage) realize how unlikely that outcome is.  It is probably best to ignore those predictions.  Here are some more interesting facts we found when reviewing long-term returns:

  • 23% of all calendar year returns were negative
  • You are about as likely to earn a return greater than 26% as you are to have a negative year in the market
  • You are about as likely to have a return between 0-15% as you are to have a return over 25%

Understanding the data and history helps us to realize how difficult and meaningless predictions about the upcoming year are.

Knowing how difficult it is to predict the future, we thought it would be more meaningful to review the past.  2019 is a year we would like to have again.  As far as US equity markets are concerned, 2019 ranks in the top 20% of all calendar years since 1926.  Here are the rest of the major asset class returns:

Asset Class Index 2019 Return
US Stocks Russell 3000 31.02%
Foreign Stocks MSCI World ex-US 22.49%
Emerging Market Stocks MSCI Emerging Market 18.42%
Real Estate S&P Global REIT 23.12%
US Bonds Barclays US Aggregate 8.72%
Foreign Bonds Barclays Global Aggregate ex-US 7.57%

There were not many asset classes that had poor returns in 2019.  While that is unique it is not uncommon.  We don’t know what the future brings, but if the past is any guide, it will be difficult to predict yet will reward the patient, long-term investor.