3-Minute Read

As we launch ahead in 2020, it can be helpful to pause and review our investment experience of the past year. While this piece won’t necessarily reflect your own investment outcomes, it does summarize the performance of the world capital markets in 2019. We also take a brief look at the market’s past decade with the idea that enduring investment principles tend to become clearer when we look at longer time horizons.

2019 Market Review

For a detailed look at the numbers and the benchmark assumptions behind them, you may download and review the full presentation, courtesy of Dimensional Fund Advisors, at this link: KWP 2019 Market Review. I’ve summarized some of the salient points below.

• In 2019, here are the returns for six of the major broad asset classes:
  • Stocks
    • US Stock Market +31.02%
    • International Developed Stocks +22.49%
    • Emerging Markets Stocks +18.42%
    • Global Real Estate +23.12%
  • Bonds
    • US Bond Market +8.72%
    • Global Bond Market excl US +7.57%
  • 2019 was a fantastic year for equities (stocks) and for those who stayed invested. Equity markets around the globe posted positive, and above-average returns. Looking at broad market indices, the US outperformed non-US developed and emerging markets for the year.
  • Regarding equity characteristics: The value effect was negative in the US, non-US developed markets, and emerging markets. Small caps outperformed large caps in non-US developed markets but underperformed in the US and emerging markets.
  • REIT (Real Estate) indices outperformed equity market indices in non-US developed markets but underperformed in the US.
  • Looking at countries across the globe (assuming returns in US dollar terms), Switzerland recorded the highest country performance in non-US developed markets last year, while Hong Kong posted the lowest return. In emerging markets, Greece was the top performer despite being the worst performing country of the past decade, while Argentina had the lowest performance.
  • In both developed and emerging markets, currencies were mixed against the US dollar in 2019.
  • Commodities had a positive return in 2019. The Bloomberg Commodity Index Total Return was 7.69%. A pleasant surprise after a tough decade for commodities with a ten-year annualized return of negative 4.73%.
  • Bond returns were also above average in 2019, due to interest rates falling in both the US and Globally. Longer term bonds generally outperformed shorter term bonds.

The 2010s: A Decade in Review

I encourage readers to review this piece from Dimensional Fund Advisors. Here is the direct link. Some of the salient points from the piece include:

• Global Stocks more than doubled in value in the last 10 years despite economic uncertainty, political upheaval and technological disruption. Remember in the beginning of this decade (January 2010), investors were only just starting to experience the recovery from the global financial crisis of 2008-2009.
• The MSCI All Country World IMI Index, which includes large and small cap stocks in developed and emerging markets, had a 10-year annualized return of 8.91%. From a growth-of-wealth standpoint, $10,000 invested in the stocks in the index at the beginning of 2010 would have hypothetically grown to $23,473 by year‑end 2019 (not accounting for portfolio management expenses).
• All decades have their share of uncertainty. Despite all the negative events you read or heard about, the US equity market experienced only moderate volatility in the 2010s compared with previous decades going back to the 1930s.
• Investors who committed to global diversification and to areas of the market associated with higher returns—small cap stocks and value stocks (i.e., stocks trading at low relative prices)—were challenged over the past decade.
• Extending the view to the last two decades, the annualized 20-year returns showed how diversification could have helped investors ride out extremes to pursue a positive longer-term outcome. I also discussed this in an earlier blog last Fall, Two Decades – One Timeless Investment Lesson
• Despite all the change and uncertainty, the fundamentals of successful investing endured. Key principles include:
  • Diversify across markets and asset groups to manage risks and pursue higher expected returns.
  • Stay disciplined and maintain a long-term perspective.
  • Take the daily news with a grain of salt and avoid reactive investment decisions based on fear or anxiety.
  • Don’t try to predict future performance or time the markets. Instead, develop a sensible investment plan based on a strong philosophy—and stick with it.

I wish you all the best in your investment experience in this new decade of the 2020s! If you have comments or questions on this piece, please drop me a line at: [email protected]

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