Picture yourself one year ago — on December 15th, 2018. The S&P 500 just took a sharp downturn. After being up 10% in September, the market went negative. And then, a fortune teller hands you the following headlines for 2019:
- The Federal Reserve will reverse course and lower interest rates three times due to a weakening economy
- The Yield Curve will invert
- The U.S. will experience the longest economic expansion in its history
- S&P 500 Earnings per share will be on pace to contract 1.5% from 2018
- Global PMI (Purchasing Managers’ Index) for Manufacturing will contract (go below 50) for the first time since 2012
- Articles of Impeachment against President Trump will be voted on by the U.S. House of Representatives
- The Trade War with China will drag on and not get resolved by year-end
- Two of the Democratic Party front-runners for President in 2020 will be self-proclaimed socialists Bernie Sanders and Elizabeth Warren
Keep in mind, these are events that actually happened. Add in the usual fear mongering from the financial media and you get what amounts to an all-out assault on “staying the course.”
What would you have done? Likely, you would have hit the SELL ALL button and waited for this disaster-of-a-year to end. Surely there will be a better time to invest! Even the most rational person would all but guarantee a down year for the S&P 500, if not a complete collapse.
That brings us to today. The S&P 500 is on pace for its best year since 2013. Better yet, every major asset class has outperformed cash this year, and a diversified portfolio of stocks and bonds is up double digits. It didn’t really matter what your investment strategy was in 2019, so long as you stayed invested.
Source: JPM Guide to the Markets through 11/30/19
Too often I hear comments suggesting, “I know X is going to happen next year, so I need to do Y.” Did that strategy work in 2019? If I gave you the headlines for 2020 today — if I told you who will win the U.S. Presidential Election, when the trade war will end, or what GDP growth will be, what would you do with that information? Chances are very likely that you would make bad changes to your portfolio.
The bottom-line: Fear and greed are the two most damaging impulses to have while developing an investment strategy. And 2019 should serve as yet another lesson on the value of developing a solid portfolio strategy with the guidance of a professional financial advisor, and sticking to your plan.