Every year brings plenty of change, and nowhere is that more obvious than in the markets. Last January we started the year having just survived a difficult December where the market dropped drastically due to recession worries. Then, despite predictions of a year of minimal returns, (1) 2019 gave us a pleasant surprise by delivering a stellar performance. Can we expect the same for 2020?
The Growth Ceiling Is Close
Year after year, we’ve seen this market expansion continue and hit record highs frequently. That’s nothing to complain about, but it does leave us with less room to grow. With such a volatile December in 2018, the markets had plenty of room for improvement in 2019. There simply aren’t as many new heights to reach in 2020 since we are starting near record highs on the tail of a strong year for both stocks and bonds worldwide. Right now, the S&P 500 is trading at 21.1 times its earnings. Last year at this time, it was trading at 16.5 times earnings and the average over the last 2 decades was 17.7 times earnings. (2) That’s why financial experts are not expecting the same kinds of returns we saw last year.
A Stable And Steady Economy
Even though you shouldn’t expect a repeat of 2019’s amazing gains, that doesn’t mean you need to worry. The economy is still growing, chugging along at a modest rate. There is little risk of a recession in 2020, especially with the progress made on U.S.-China trade and the Federal Reserve’s commitment to keeping interest rates low. One of the biggest unknowns for 2020 is how the presidential election will impact the economy, but with a strong foundation, the impact should not be great or long-lasting.
Analysts are expecting continued growth for 2020 and this next decade, though at slower rates than we saw last year. Vanguard forecasts American stocks to return 3.5% to 5.5% gains over the next decade, which is much lower than we have seen recently. (3) Even if gains are lower, they are still expected to be positive.
What Should You Do About All This?
What does all this information mean for you practically? First of all, it is important to remember that no one has a crystal ball and any predictions you hear are merely guesses. No one predicted that 2019 would be the S&P 500’s best year since 2013, (4) and none of us know for certain what the future holds. We are just making educated guesses and there is no guarantee that what we expect will happen.
In light of that, it is important to have a balanced investment strategy that takes into account all possibilities. A well-diversified portfolio designed with your specific time horizon in mind should be able to meet your needs whether the market returns 2% or 20% in 2020.
The greatest danger in prosperous times like these is for investors to become complacent or greedy and ignore the proven principles of long-term investing. If you want to make sure that your portfolio is prepared for whatever 2020 has in store, contact us at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.
About Haydel, Biel & Associates
Haydel, Biel & Associates is an independent financial advisory firm serving individuals and families near Pasadena, California. The firm was founded in 2004 by Chris Haydel and Ricky Biel with a desire to provide unbiased, client-centered, community-based financial advice. Together, they have built a practice that has grown into a family of caring, smart professionals committed to blending proven investment methodologies with creative financial technologies that make it easier than ever to accomplish your goals. They strive to keep things simple and fun to give their clients peace of mind and alleviate financial stress. HBA Wealth takes care of their clients’ needs first and foremost and goes the extra mile to make their clients’ finances grow. To meet and see how the HBA Wealth team may be able to help, contact them today at (626) 529-8347 or email Ricky directly at ricky@hbawealth.com.
The commentary on this blog/website reflects the personal opinions, viewpoints and analyses of the Haydel Biel & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by Haydel Biel & Associates or performance returns of any Haydel Biel & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Haydel Biel & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
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(2) https://www.nytimes.com/2020/01/01/business/wall-street-markets-2020.html
(3) https://www.nytimes.com/2020/01/01/business/wall-street-markets-2020.html
(4) https://www.nytimes.com/2020/01/01/business/wall-street-markets-2020.html