Winter greetings and Happy New Year from Integrity Wealth Advisors. One of the biggest challenges of the Christmas season is that it seems to get busier every year. We hope that each of you were able to relax and enjoy meaningful time with family and friends over the holidays.
The Integrity organization had another strong year and we are so thankful to all of our clients. We try to show our appreciation throughout the year to include a Christmas Open House each December. Over 100 clients and friends visited with us on December 10 th . For those of you that are local and were not able to attend, please be sure to drop by for a few minutes this year. We would love to see you.
2019 turned out to be significantly more positive than many economists and analysts predicted as we came out of a painful 4 th quarter of 2018. Years like this are the ones that are the most fun to talk and write about. Both the economy and investment markets performed well. As always, there were noteworthy story lines and market gyrations. Don’t forget that there was a stock market pullback of 7% during the year, which is normal, but doesn’t that seem to be in the distant past? Let’s take a look at some of the highlights of the year.
Major Economic Storylines of 2019
The Fed and Interest Rates – The Fed reversed their course of raising interest rates four times in 2018 by reducing rates three times in 2019. They also stopped reducing their balance sheet. This accommodative policy was helpful to the economy and investment markets.
US and China Trade Tensions – Will they or won’t they come to a comprehensive agreement? We still don’t know. We do know that it is hurting China more than it is hurting the US. The “phase-one” stand-off is limited in scope but is a step in the right direction and seems to have appeased global markets…for now.
Economic Expansion Record – As we entered 2019, many people were predicting a near-term global recession. Depending on your data source, the Great Recession (second-worst stock market experience ever) ended somewhere between March and July 2009. Ten-plus years later and the economy is still expanding. The decade that ended last month was the first one since the 1800s to not experience a recession. We are seeing predictions now that 2020 will be another year of economic growth in the US (3% GDP).
Employment and Wages – The December unemployment rate remained at 3.5% which is a multi-decade low. The U-6 measure of employment (sometimes called the “underemployed” rate) fell to 6.7%. This is a record low with data going back to 1994. Boosted by strong employment, wages through November were up 5.7% for the year. To borrow a quote from First Trust Advisors, “the strong labor market has more people working more hours for more pay”.
Let’s review what happened during the 4 th quarter of 2018. Between September and Christmas Eve we experienced a significant pullback in the equity markets, exemplified by the S&P 500 falling nearly 20%. We can partially thank the Fed’s interest rate strategy and trade tensions with China. As referenced above, many economists and analysts were predicting a near-term recession and disappointing market returns going into the new year.
Then in 2019 the Fed changed course, trade negotiations between the US and China started to turn around, and companies around the globe continued to be profitable. The results for the year were quite remarkable. Take a look below at the 2018 versus 2019 total returns and three-year annualized total returns for major asset classes around the world:
Quite the turnaround. It was a fantastic year to be an investor in the public markets regardless if you were investing in stocks, bonds or both. As we celebrate, let’s remember two keys to long-term successful investing:
- The reason stock investors did so well in 2019 is the same reason they lost so much in 2018. Risk. History suggests that higher returns are achieved by taking more risk. Don’t let the returns of 2019 lull you into a false sense of security. We will have a pullback at some point, and the magnitude of loss for most investors will be directly related to the percentage of their portfolio in stocks. Be sure that the risk you are taking in your investments is appropriate for your long-term needs.
- Despite what (unfortunately) many investors and advisors try to believe, the investment markets are not predictable. For those of you that work with Integrity, you have heard this time and time again. We believe that because markets are not predictable, the best approach to investing is to diversify. There is a lengthening history of US large stocks outperforming everything else, and growth-oriented stocks outperforming value-oriented stocks. We still believe strongly that it is dangerous to concentrate a portfolio in these two areas. For the majority of investors, the addition of smaller stocks, international stocks, value-oriented stocks, a variety of bonds and cash are key to the long-term health and performance of a portfolio.
Looking ahead at 2020
We wish we could tell you what will happen in 2020. Among other things, we are hopeful that the Fed will make good decisions, the economy will continue to grow, employment and wages will continue to improve gradually, the trade wars will be resolved, and we see another year of positive returns in the investment markets. The current financial data provides support for these hopes; experienced investors realize there is no guarantee.
What we can predict for 2020 is that there will be new economic stories, media members being grossly positive or negative, an overdose of politics, and another year of investment commentary stating “it’s different this time”. When it comes to financial strategy, you can choose to embrace fear or greed, or maintain the discipline that has proven itself over many years through countless impactful events around the world. If you find yourself fearful about your financial future, please be sure to call us. Comprehensive financial planning and a disciplined investment strategy are the keys to financial peace and independence. We value being a calm voice in uncertain times.
For those of you that are clients, we are grateful for allowing us the opportunity to serve you.
Thank you and enjoy the rest of winter.