Good morning & happy Monday!
If you think the market’s ‘too high’ wait ‘til you see it 20 years from now.
Nick Murray, author
So, now that 2021 is in our review view mirror we can benefit from hindsight.
I think most of us looking back on the year would say it was challenging at best. Supply chain issues caused empty shelves throughout stores, the U.S. exit from Afghanistan was a disaster, Iran increased its nuclear capabilities, a riot on the Capitol, a new presidential administration, vaccine rollouts, vaccine mandates, questions about vaccine effectiveness, lockdowns, COVID-19 cases reached over 55 million in the U.S. (me being one of them) with over 800,000 deaths (worldwide those totals are even more staggering with 293 million cases and nearly 5.5 million deaths), political tensions running red-hot, and inflation hitting the highest level in my lifetime … just to name a few.
2021 was a crazy year. And yet …
The S&P 500 was up 28.7% in 2021. 70 times during the year it hit an all-time high (at least once every month), that’s the 2nd best streak ever, only behind 1995 where there were 77 all-time highs recorded. Take a look at the below chart that shows S&P 500 performance going back to January 2016. Quite the ride we’ve been on.
Crazy, isn’t it. It feels like the world is falling apart and yet the market did exceptionally well in 2021 … over double its average return.
Now, before we go any further, I know what is likely running through your mind … something along the lines of “what just a second, I did not get a 28% return in my account in 2021!” No doubt, neither did I.
The S&P 500 is a measure of U.S. large company stocks, but there is much more to an diversified investment strategy than just large U.S. company stocks.
Now, without getting too boring and in-depth, here’s how 2021 looked for some major asset classes:
- S&P 500 (500 large U.S companies) = +28.7%
- Dow Jones (30 large U.S. companies) = +20.9%
- NASDAQ (tech focused U.S. companies) = +22.2%
- Small U.S. companies = +26.8%
- Foreign stocks = +11.8%
- Emerging markets = -2.2%
- U.S Bonds = -1.5%
- 10-year U.S. Treasury = -3.6%
- Global bonds = -4.7%
As you can see, the returns were as high as positive 28.7% and as low as negative 4.7%, depending on the asset class invested in. This is not uncommon and the huge reason for diversification (more on that next week). The chart below shows how the S&P 500 (the red box in the chart) did in comparison to other asset classes for the last 16 years.
As you can see, there are years that the S&P 500 has been towards to top (2021), other times it’s underperformed other asset classes.
Now, I will warn you, there will be plenty of financial talking heads who will provide all sorts of analysis and predictions for what will happen in the year ahead. Here’s a little secret: they don’t know. I love the quote from economist John Kenneth Galbraith “The only function of economic forecasting is to make astrology look respectable.”
The stock market and your investment portfolio are nothing more than an efficient means of growing your wealth in order to serve you & your goals. Staying disciplined and goal-focused is the best way I know how to make your goals a reality.
I look forward to connecting with you to discuss further how we can partner with you further to make progress towards your goals.
Make it a great week ahead 😊