By: Colleen Weber
News / News and Updates
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By Colleen Weber, CFP®, CPA
How was your 2019? Did it blow away your expectations or just leave you feeling let down? Well, for our markets, 2019 was definitely the former. We said goodbye to 2018 with a difficult December where the market dropped drastically due to recession worries, then enjoyed a 2019 full of unexpected, stellar returns. Does that mean we’ll see a repeat performance for 2020 or should we temper our excitement?
We’re Already Near The Top
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. (1) That’s why financial experts are not expecting the same kinds of returns we saw last year.
Strong And Stable
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. (2) Even if gains are lower, they are still expected to be positive.
What Should You Do?
What does all of this 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, (3) 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, book a free introductory meeting online!
Colleen Weber is a fee-only financial advisor, CERTIFIED FINANCIAL PLANNER™ professional, and CPA with more than 15 years of financial planning experience. Providing comprehensive financial planning and wealth management, she specializes in serving clients nearing retirement, retirees, busy professionals, and women. She is passionate about developing financial plans that save clients on taxes, and investment strategies that help them pursue their goals. Learn more about Colleen by connecting with her on LinkedIn or booking a complimentary phone call meeting.