Quarterly Client Update Q4 2021
We hope you had a wonderful Christmas and that 2022 is off to a happy and healthy start. The new year is a unique time to look back as well as to look to the future and we’ll attempt to give you some insight and perspective for both.
We often say Invest in the Market, don’t try to predict it and 2021 is the poster child for that advice.
Generally, those predicting the market thought stocks would struggle in 2021 after the S&P 500 unexpectedly gained 18% in 2020 despite the pandemic and unemployment that, at the peak, was 14.7% (we’re now at 3.9% - an amazing feat!). 1
What actually happened, was one of the best years for US stocks ever. The S&P 500 hit new all-time highs 68 times and had a return of 28.7% with dividends. The S&P 500 has had 102 new all-time highs this decade (with 8 more years to go). The 2010s saw 241 new all-time highs. The 2000s? Just 13.2
We’re often conflicted when we see these record highs. Yes, we’re pleased the investments are doing well, but we can convince ourselves that these new highs only foreshadow significant declines ahead. What goes up, must come down. Right? Before we convince ourselves the next decline is just around the corner, let’s review what we know.
Ignore the investment gurus. The most optimistic participant in Barron’s survey of investment professionals predicted the S&P 500 would close at 4400 at the end of 2021. It closed at 4766. In April, economists generally thought inflation would be at 2.5% right now. It’s nearly 7%. There are many who called for a huge market crash that clearly never came. We could go on and on. There is just no predicting the stock market.1
Volatility is the price of admission. The market will go up and down and this is normal. If embracing stock market volatility is the price of the ticket to being invested in the market, remember what that ticket represents. It is a claim on companies’ earnings and dividends. In every business there are managers going to work seeking projects that appear to offer profitable returns on capital and that will provide a good or service that people will pay for. Yes, some will fail, but history gives us abundant evidence that investors can be rewarded for the capital they provide. Even at new all-time highs. The chart below shows that, on average, investing at all-time highs has generated similar returns to investing after a market decline.3
We should take comfort knowing that there is not some force working against portfolio returns just because of hitting all-time highs. The economy is still moving, companies are still working to make profits and every trade has an expectation of a positive expected return. We would do well to focus on what we can control and not try to control investment returns by attempting to time the market.
1Source: Bob Seawright, The Better Letter 1/6/22, Ycharts
2Source: Charlie Bilello, 12/23/21, Bob Seawright, 1/6/22, Ben Carlson, A Wealth of Common Sense, 1/2/21
3Source: Weston Wellington, All-Time-High Anxiety
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.