In 2018, domestic equity markets posted the worst performance seen in a decade. The year started positively, with large cap stocks up mid single digits through September until volatility returned and stocks finished the year in negative territory. *The Dow and S&P 500 both had negative returns for the year with negative 3.5% and negative 4.4% returns for the year, respectively. International stocks as well as small- & mid-cap were also negative for the year. Bonds finished the year essentially flat and rallied in the last quarter as stocks fluctuated.
It is important to put a year like 2018 into perspective. *Looking back over the past 6 years prior to 2018, the S&P 500 has recorded annual returns of 21.8%, 12.0%, 1.4%, 13.7%, 32.4%, 16.0%. *Including 2018, this is an average annual performance of 13.3%.
While negative and volatile years can be worrisome and concerning to investors, looking at long-term performance can help put things into perspective.
*Over the past 68 years, the S&P 500 has been positive 80% of the time with an average annual return in those years of 19.1% and negative 20% of the time with an average loss of 12.5% in those years. Springside Partners made several timely and proactive adjustments to our managed portfolios in 2018. These tactical moves helped maintain the risk parameters that are in place for every account we manage.
- Rebalanced client portfolios in the first and third quarters of 2018.
- In September and October, we repositioned the bond portion of our portfolios to reduce equity risk by moving out of the preferred stock position and reducing exposure to high yield bonds.
- Proceeds from these sales was invested in short-term government bonds, which historically have overall performed well in times of stock market declines.
By rebalancing and repositioning our clients’ portfolios, we sought to maintain the account objectives and shift out of assets that we believed were going to be more negatively impacted by the fourth quarter market turbulence.
Looking ahead into 2019, we see several areas to keep a close watch on. On the positive side, from an economic perspective unemployment remains historically low, interest rates, while increasing domestically, also remain below historic averages. Corporate profits may benefit from 2017’s tax cuts. The ongoing trade situation warrants continued attention as does the pace of rate increases which the Fed will pursue in the coming months. We are mutedly optimistic about financial market returns for the new year but believe volatility will likely remain in place for the near-term.
Springside Partners knows it is of great importance to review and confirm the objective, risk profile, time horizon, and asset allocation of every portfolio we manage at least annually with our clients, and years such as 2018 put this practice into greater perspective. We are always happy to discuss your asset allocation and confirm with you that it remains appropriate or perhaps if it might be prudent to make an adjustment.
*Data obtained from Standard & Poor’s 500 Stock IndexTotal Return: Calendar Years 1950 – 2018 Percentage Gain or Loss Chart, CRANDALL, PIERCE & COMPANY. 2018. 12B-T.