A Look Back at 2018 Asset Class Returns
The Veater Financial Table of Investment Returns ranks the annual performance of key asset classes over each of the last 20 years. The best asset class for a given year is listed at the top, with the lowest returning asset class listed at the bottom. Below are a few key takeaways as we look back on 2017:
- 2018 - Record setting. We witnessed a decline in the S&P 500 (-6.2%), Nasdaq (-4%), and the Dow (-5.6%). For 2018, December will be the month we all remember as it was the worst on record since 1931. Surely 2018 was a turbulent year with big swings. Throughout its existence the Dow has only had 1,000 point swings 8 times. We made it through 5 of these large swings in 2018 alone. Although this is not the news we like to hear, we must also note that the S&P 500 set its all-time record high on September 20, and the Dow did the same on October 3, in year 2018.
- Market drivers in 2018. Political battles, inflationary fears, trade wars, concern of global economic slowdown, and even U.S. mid- term elections played part in market volatility. Of these, the most discussed topic among our clients was trade negotiations with China. Since President Trump’s announcement of tariffs on billions of Chinese goods in the first quarter of 2018, many investments that shared any association with the matter were avoided by investors for the greater portion of the year. On the flip side, we did however see investors flock to an assumed “safety position” in small caps. The ideology in doing so for investors was the lower level of risk and exposure to anything foreign/overseas. This belief seemed to be accurate and produce for investors until the fourth quarter came along. A steep sell off in small caps in October 2018 and then a crippling blow in the last half of December 2018 sent the asset class to the lowest levels of the year.
- Looking forward in 2019. So far in the first few trading sessions of 2019 (through close of market 01/10/2019), we have experienced positive momentum in the performance of small capitalization U.S. stocks. The Russell 2000 Index measures the performance of small capitalization U.S. stocks. Illustrated by the yellow box on our Callan Chart we can see that this indices has now begun to show signs of life (+7.22% YTD as of market close 01/10/19). Throughout 2018 small-cap stocks were volatile due to constant concerns over United States and China trade relations. Going into 2019 we can expect continuing negotiations between U.S. – China delegations. Naturally when uncertainty is high, we can expect turbulence in our investments. The good news is revealed in our Callan Chart and our style of diversification when investing.
One of the key conclusions that we draw when looking at how the stock and bond markets perform over time is the importance of diversifying one’s investment assets. No asset class stays at the top. There is a constant rotation in what is performing well during any given year. And we believe that the most prudent and likely way to generate desirable risk-adjusted returns is to maintain diversification across asset classes. Note that the chocolate box you see on this chart represents a “Moderate Growth” style of investing. It diversifies across the various asset classes listed and historically can create a more consistent return.
"Moderate Growth" is a hypothetical portfolio for illustrative purposes, and is not representative of any investment, account, or portfolio offered by Veater Financial Group.
Stock investing involves risk including loss of principal.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
No strategy, including asset allocation, assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Strategies and investments mentioned may not be suitable for all investors.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Any economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.