A Year in Review and a Glimpse Forward

It’s been widely reported that 2019 was a great year for financial markets.  By all accounts, even a simplistic portfolio of 60% stocks (of the S&P 500, a market value weighted index of U.S. holdings) and 40% bonds (of the Barclays U.S. Aggregate Index), generated an impressive return.  In fact, it generated the highest calendar year return since 2000, as seen in the chart below. 

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This gain was largely due to spectacular performance of the S&P 500 index, returning 31.5% (total return), the best performance since 2013.  Looking a bit deeper—and, by our view, a more notable statistic—the S&P 500 has returned at least 15% in 13 of the last 25 years (more than half of the last quarter century).   If we went back further in time, the index has generated close to 11% per year (total return) over the past 50 years, has been positive 40 of those years (80% of the time) and 15 of the last 17 years (88% of the time).  To our mind, this provides further evidence of staying the course and thinking long-term.  

What about fixed income?  2019 was an amazing year for fixed income, with taxable bonds up 8.7% (as viewed by the Barclays U.S. Aggregate).  In fact, 2019 was the best total return for the index since 2002 (17 years ago!).  Over the last 30 years, this index has returned roughly 6% per year, largely due to declining interest rates (bond prices react inversely with interest rates).  More importantly, MFS Investment Management recently stated that the Barclays Aggregate was created in 1986 with history backdated to 1976, and using this data, shows the index produced a negative total return for the calendar year in only 3 of the last 44 years (just 7% of the time).  This statistic demonstrates the all-important nature of fixed income in client portfolios and one of the main principles of fixed income – stability.

Important Note: This material is for informational purposes only and is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. The opinions expressed herein are those of the named advisors at the time written.  Actual economic or market events may turn out differently than as presented. © Madison Wealth Management 2020