Earnings growth of over 20%, economic growth accelerating, regulations being loosened for business and continuing record levels of small business optimism. This was the backdrop for 2018. Think back to a year ago. As stocks were hitting record highs, many investors predicted that the good times would continue. Given this, would you believe that cash was the best performing major asset class for 2018 and the only one that was positive? It’s true. A record number of asset classes were negative. In fact, Deutsche Bank went back and looked at the last 117 years and couldn’t find another year quite like this one. US stocks, International stocks, emerging market stocks, global bonds, high yield bonds, corporate bonds, energy/commodities and real estate – all negative. 2018 was the year that nothing worked – no one had a better mouse trap.
We continue to believe that a key tenet to achieving long term success as an investor is to diversify by owning a basket of asset classes. Realize though that a diversified portfolio does not always go up. Since 2000, there have been 5 years when this approach was down in value in a calendar year (2001, 2002, 2008, 2015, 2018). However, if one takes a longer view the benefits of this approach are easy to see. Even over the last 15 years, a period which includes the financial meltdown and three global stock bear markets, a diversified portfolio provided growth and income with much lower volatility (source: JP Morgan Asset Management). In addition, one doesn’t have to time the market nor worry about picking the best asset class.
As 2019 kicks off, make a resolution to not let a tough 12-month period cause you to abandon your investment approach. Keep your emotions out of the process! Just like last year, there will be surprises and both good and bad news. These headlines will impact the markets. Over time, let them float into the background and become noise. Sticking to time tested strategies including risk measurement, diversification and rebalancing will keep you on track over the full cycle. Please watch our recent Quarterly Market Update for more information.