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History 101: A Tale of Two Decades

Mark J. Smith, CFP®, CPA/PFS, CIMA®
November 21, 2019

It’s often said there are two things that are certain: death and taxes. I’d like to add “market fluctuations” to that list.


Watching the S&P 500 and its fluctuation can make people feel a little anxious. When the market is up, it’s natural to want to move money and go after the “hot” investment trend of the moment. And when the market is down, you may feel like stuffing all of your money in your mattress is the safest bet.


So why don’t we encourage you to keep moving your money from place to place so your portfolio can ride or avoid the big waves? The reason: market timing does not work.


Our philosophy – based on decades of experience – continues to be centered on creating broadly diversified investment portfolios designed for the long-term.


We know from studying the markets over the last 20 years – you can use the S&P 500 as an example – that there will be highs and lows.

Here is what history has demonstrated very effectively:

January 2000 – December 2009

This decade brought disappointing returns for many who were invested in the S&P 500. An index that had averaged more than 10% annualized returns before 2000 instead delivered less-than-average returns. Annualized returns for the S&P 500 during that market period were −0.95%.


However, for investors who had diversified their holdings globally beyond U.S. large cap stocks and included other parts of the market with higher expected returns—companies with small market capitalizations or low relative price (value stocks) – things looked much better. A range of indices across many other parts of the global market outperformed the S&P 500 during that time span.

January 2010—June 2019

Our most recent decade tells a different story. The S&P 500 more than tripled since January 2010 as we rebounded from the global financial crisis. U.S. large cap growth stocks have been the shining stars during this time period.


Conversely, from 2010 through the first half of 2019, many parts of the market that performed well during the previous decade haven’t been able to outperform the S&P 500.


Since many of these asset classes haven’t kept pace with the S&P, these returns might cause some to question their allocation to the asset classes that drove positive returns during the 2000s.

In for the Long Haul

As Mark Twain (or Joseph Anthony Wittreich depending on your research) said, “History never repeats itself, but it often rhymes.” That means by studying the past, we can understand the repeated mistakes of others and avoid making similar emotional errors.


Over the past two decades, investing outside the U.S. presented investors with opportunities to capture annualized returns that surpassed the S&P 500’s 5.65%, despite periods of underperformance, including the most recent nine-plus years. Cumulative performance from 2000 through June 2019 also reflects the benefits of having a diversified portfolio that targets areas of the market with higher expected returns, such as small and value stocks. All of this underscores the principle that longer time frames increase the likelihood of having a good investment experience.

At the risk of sounding like a broken record, as a firm, we will always circle back to the sound advice that has helped us serve four generations of clients: we encourage a realistic approach to investing and wealth building that includes a balanced portfolio, considers your financial goals, and is set up for the long term to withstand market fluctuations.


Returns can vary sharply from one period to another. Holding a broadly diversified portfolio can help smooth out those swings (and your anxiety!). And focusing on known drivers of higher expected returns can increase the potential for long-term success. Having a sound strategy built on those principles—and sticking to it through good times and bad—can be a rewarding investment approach.


The key is patience.


We always welcome the opportunity to discuss your financial goals. Make an appointment today to meet with one of our team members.

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Diversification and asset allocation do not ensure a profit or protect against a loss. Keep in mind that there is no assurance that any strategy will ultimately be successful or profitable nor protect against a loss. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. All charts are for illustration purposes only.

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