This post is an excerpt adapted from a letter sent to my financial advisory clients in February 2020.

Historically Great Returns

2019 was a very good year for investments. How good? U.S. large-company stocks turned in a 31.5% return and bonds rose 8.7%. It was the 18th best year for stocks since 1926 and the 19th best year for bonds over that same period. There have only been four years with better combined stock and bond performance since 1926!

Not only was 2019 a great year, but the decade of the 2010s as a whole delivered powerful growth in U.S. large-company stocks without any sustained bear markets. Economically, it was the longest period in U.S. history without a recession!

You can listen to more of my thoughts about 2019 and important financial considerations for 2020 in this recent radio interview I did with WTIP.

Strategies for 2020 and Beyond

Will these strong market and economic trends continue into 2020?

There is no shortage of informed opinions, but we don’t believe anyone can predict market changes with enough certainty and consistency to provide a sustained short-term trading advantage. The good news is that we don’t need to know the exact date of the markets’ next major turn. Your financial success depends far less on predicting or reacting to one or two years and far more on preparing and planning based on durable insights.

In that context, here are a few key strategies we recommend for your investments in 2020 and beyond:

Trust that stocks have delivered more returns than bonds over time. A long-term perspective shows that stocks have outperformed bonds about two-thirds of the time. It is important to have enough stock ownership in your portfolio to build wealth for the purpose of funding future needs and to outpace a rising cost of living. Not wavering in the years that stocks drop is key to realizing their long-term gains!
Know that stocks won’t always outperform. While stocks win most of the time, they don’t win every time. In roughly one-third of the years, stocks will disappoint. To build more resilient portfolios, we hold bonds and combine multiple investment categories in an attempt to “smooth the ride.” Underlying these major investment categories is a substantial number of securities used to minimize the risk associated with any one company.
Control what you can and largely ignore what you cannot. Dimensional Fund Advisors’ David Booth reflected on his 40+ years in the business with this conclusion: “If you’re living in fear of the next downturn, consider shifting your thinking instead of your investments.” We work to build not only resilient portfolios, but also resilient investors! Understanding that emotions fight with rational investment behavior, as well as identifying common flaws in financial decision making, is a key attribute of great investors. We aim to provide an independent, objective, outside expert voice to help in this regard. I’ve written more about this topic on my blog.
Financial planning and goals-based investing. Market index returns are fairly meaningless compared to benchmarking against your own personal goals. Our financial planning process is designed to help monitor the timeline for funding your future financial goals, understanding the priority of competing goals, and identifying and managing potential threats to accomplishing your goals. We will continue to use the best tools at hand to coordinate your investments with your financial goals. I’ve written more about this topic on my blog as well.

We wish you all good things in 2020! More importantly, we look forward to guiding you through whatever the year may bring and working with you to turn your goals into achievements.

As always, please let us know how else we can help.