A Tale of Two Decades - Old Peak Finance

A Tale of Two Decades

March 19, 2019

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A Tale of Two Decades

March 19, 2019

We're at the 10th anniversary of the stock market's low point of the Great Recession: March 2009. Since then, the US market has risen by almost 4 times. Real estate has done even better.

Plenty of investors make decisions looking at the recent past. If that's your strategy, you might want to reconsider. Here's why.

The chart above compares two 10-year periods: 1999-2009 (5 bars on the left) and 2009-2019 (5 bars on the right). It reports annual performance of US stocks (dark blue), non-US stocks (orange), bonds (gray), real estate (yellow) and commodities (light blue).

Talk about two very different decades.

Now, imagine you were making decisions in 2009 about how to invest. If you believe the recent past predicts the future, you would have concluded:

  1. US stocks are money losers
  2. Non-US stocks aren't as bad, but they still don't generate a return
  3. Bonds beat stocks
  4. Avoid real estate like the plague
  5. Commodities are the best way to make money (this index includes oil, agricultural and metals)

 

Fast forward 10 years, to today. If, in 2009, you had invested based on the decade you had just survived, you would have missed two of the greatest investing opportunities in a century: the US stock market's run from 2009-2019, and real estate's run over the same period. You would also have missed attractive non-US stock returns.

The solution? Don't try to time the market. Instead, follow two simple rules of investing:

  1. Decide how much risk you can take, and use that money for stocks and "alternative" investments like real estate. The last century strongly suggests stock and real estate will do well, long-term. Keep the balance -- your cushion -- in bonds, with a bit of cash.
  2. Diversify. Don't just buy US stocks, or large stocks, or stocks in industries you like, or real estate. By spreading out your risk, you lower it and are likely to do better.

 

Then, brace yourself for long cycles that will test your conviction.

A decade can seem like forever. It's not.

This article is not intended to provide tax, legal, accounting, financial, or professional advice. Readers should seek advice from qualified professionals who can review their specific circumstances. Old Peak Finance endeavors to provide information that is accurate and current. However, we cannot guarantee that this information has not been outdated or otherwise rendered incorrect by new research, legislation, or other changes. Old Peak Finance has no liability or responsibility to any individual or entity with respect to losses or damages caused or alleged to be caused, directly or indirectly, by the information contained on this website.

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