"Out of Complexity, Find Simplicity" (Albert Einstein)Happy New Year.
As we welcome 2020 we also welcome a new decade. The last 20s was somewhat defined by the stock market which led to both the most exciting and fun decade ever to years of post decade depression.
Of course we live in a very different word today but being financially secure and not having to worry about money would remain a goal of us today, a person living in 2020 , in the same way the same way they were goals for our descendants 100 years ago
So how did this decade end...well December was another top month for stock markets around the world, a real "cherry on the top" for what has been a very positive year across the board....data being:
MSCI World +2.9% +25.2%
S&P 500 +2.9% +28.9%
FTSE +2.7% +12.1%
Nikkei +1.6% +18.2%
SSE +6.2% +22.3%
MSCI EM +9.2% +24.8%
And on the currencies. The USD fell against its counterparts but still had a generally strong year. With the UK finally seeing some direction with Brexit, Sterling was the overall winner...data for USD versus being...
GBP -2.5% -4.0%
EUR -1.6% +2.5%
JPY -0.5% -0.6%
AUD -3.9% +0.1%
CNY -0.8% +1.4%
Hopefully many of you were toasting your portfolio performance along with the coming of the New Year. With great numbers like above, if 2019 wasn't a good year for you, its definitely time to change things
Using the S&P 500, a 28.9% gain made it the 5th best year since the Index began in 1957. Interestingly I had a look back on my blog on 1/1/19 and while you all know my thoughts on predicting and what a waste of time it is, below is what I wrote reference to patterns...not a million miles off what happened...
For those who look at patterns, the nearest example in recent history I could find was 1989, 1990 & 1991.
1989 was a terrific year (as was 2017), 1990 we saw a stumble, with the S&P experiencing losses almost identical to last year...and in 1991 we saw a 26% increase. I am sure we would all take that return on our hard earned cash over the next 12 months...or even half of that.
So what to make of this? The last quarter of 2018 and especially the worst December since 1929 was always likely to lead to a bounce and a good start to 2019, which indeed happened. Stocks were cheap in January. Upward trends then continued for the year.
Economic Growth remains strong across the world. The economy is generally in a good place despite often people's perception is different. We are overloaded daily with news, views, political dialogue, much of which is purported by those with an agenda, whether that be left wing / right wing whatever...
This leads people to think that the economy is "in a mess" or we are in "difficult times", but the numbers quoted above, markets at their highest ever suggests this is not the case
Best performing market in 2019 - Russia. Second best - Greece. Yup Greece who not so long ago were seen as a state of complete economic incompetency. Who would have had the foresight / guts to have invested there...those that did are 37% better off on those investments than they were a year ago
Losers were Chile and Poland who both suffered drops of more than 15% in their respective markets.
Leaders like Donald Trump and Boris Johnson are divisive characters and this creates political and emotional turbulence which can rub off on the markets. But all of this is still secondary to fundamentals. Well ran companies with good products will grow and so will your investment there.
A US$100,000 investment at the start of the decade into an S&P 500 tracker would today be worth US$287,622 - not a bad return - almost three times your money without having to do anything.
It doesn't always work out like that of course, go back the decade before and that same $100,000 invested on 1 January 2000 would be have been worth US$78,807 on 1 January 2010
Whilst I'm certainly not in a position to question the greatest investor ever, Warren Buffet on his famous "Time in not timing" quote ,when it comes to the market, every person's situation needs to be looked at in isolation.
The chap who was due to retire on 31 December 2009 and had all his money in equities would definitely think timing had an important role in him achieving his financial goals, which could have been ruined. So this process needs to be managed based on your time horizon until retirement, the level of wealth you feel you want / need, your risk, your attitude to liquidity etc.
Same chap who retires today would have out performed his expectations but did so with greater risk with equity exposure
Generally as you get nearer retirement and once you do retire, moving from Capital Growth to Fixed Income is a common sense approach. However in an era when bank interest in more established currencies in no longer available (and in my opinion gone forever), you have to either sacrifice liquidity or take on Capital risk.
This is complicated and requires expert advice to get it right. The lines between simplicity ("buy good companies") and complexity ("when to buy, when to sell, what to hold") are easily blurred and getting it right or getting it wrong can have a profound effect
Kick off 2020 by getting on top of your finances. Make an appointment, pop in for a chat with me and and lets see if we can create some clarity....