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Top Investing Lessons From 2013
Wednesday, February 5, 2014
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If 2008 was the “Black Swan” then what was 2013? Some investors might call it the “Golden Goose.”

Who would have expected that after four years of up markets, the S&P in 2013 would return more than 32%? But that’s what happened, according to numbers from Morningstar.

Back in 2009, amidst the panic of the 2008 market meltdown, the talk was all about how to prepare portfolios for the random events of a major market downturn or the “Black Swan.” The headlines were everywhere including the famous article declaring the “Lost Decade” referring to the 10-year performance of the S&P 500 from 2000-2009 (-0.95% annualized return).

If we can give that much attention to the negative side of random events, where is all of the attention to the opposite side, like what happened in 2013? It is years like this that can potentially reward the hard work and determination that go with planning for the long term.

What can years like 2008 and 2013 tell us about investing? To me it’s fairly clear. (Of course, everything is 20/20 with the benefit of hindsight.) Here are some lessons learned:

  • Good and bad periods (days, months, years) tend to occur close to one another.
  • Long-term investing means having to experience periods when companies are valued less and times when they’re valued more, but historically speaking, the value of companies has tended to increase. (Some people call this the “market.”)
  • It’s never as bad as the media make it appear, and it certainly isn’t as good either.
  • The best recipe for preparing clients for the future is helping them plan for life issues rather than simply managing their money.

When looking at the past decade (January 2004 – December 2013) the S&P 500 is up an average annualized return of 7.41%. Investors who stayed true to their long-term plan, were properly diversified and didn’t pull in and out of the market certainly were rewarded during this period. Someone who retired at the end of 2003 just experienced the “Long-Term-Average Decade.”

So, whether it’s the “Black Swan” or the “Golden Goose” or the “Lost Decade” or the “Average Decade” it might be wise to not draw too many conclusions and start trying new ideas.

Most years are a mixture of mildly up and down markets. The 2013 markets are what can increase the averages and make up for the black swans with a major impact on client portfolios. No one knows when these markets will occur, so rather than trying to guess, you want to stay invested in a diversified portfolio all the time to have a better chance of capturing the market rate of return.

Steve Atkinson is EVP and head of advisor relations at Loring Ward, a third-party asset management program (TAMP). His team is dedicated to helping the independent advisors who partner with Loring Ward to grow their businesses through ongoing support and coaching.


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