2019 Year-End Letter
A moment to congratulate you – the disciplined investor
Do you remember what happened in December of 2018 after the global equity markets fell off a proverbial cliff? How it made you feel to see a year of negative returns? Indulge us for a moment as we relive a time that was less than pleasant.
Through September of 2018, global markets delivered positive returns. Then in the fourth quarter, markets decided to throw in a curve ball to test our ability to keep our seat belts buckled tight. Declines were uniform across a handful of global markets including here at home. The S&P/TSX Composite Index returned a painful -.8.89%1 for the year. Ouch.
Did you run for the hills? Move your portfolio to cash and bonds to soften the pain? No. You did exactly what you were supposed to do: absolutely nothing. Maybe you felt nervous and wanted reassurance that this was normal. Maybe you gave us a call to ask some questions. Maybe you didn’t do any of that. All of those reactions are okay; what matters is that you stayed in your seat. As payment for your discipline, the markets had a strong 2019 that more than accounted for the damage done in Q4 2018.
Annual Market Summary
2019 index returns
The financial media has lots to say about a looming recession – should you be listening?
2019 was a year of strong returns for global markets and investors who were well positioned with globally diversified portfolios reaped the rewards without fear of missing out. Did the financial media pundits congratulate the disciplined investors who stayed in their seats after a painful end to 2018? Of course not. That doesn’t sell magazines or subscriptions. Headlines that incite fear and anxiety do.
The common theme these self-titled “experts” hammered on this year was the imminent threat of recession. Are they completely wrong? Not entirely. Let us explain.
There will be another recession – that part is truthful. Wait! Stay with us. The key difference is no one knows when it is going to happen, how long it could last, or what the impact will be. It could be tomorrow, next month, 3 years from now. It could last a month, or it could last 2 years. Markets could fall 5%, or 40% before leveling off…You get the idea – it can’t be predicted. So, what does all that mean to you?
It is important to note that these events are neither unexpected or unusual; recessions are a normal part of a market cycle. They represent two periods of consecutive negative GDP growth, but an investor may associate it with a larger economic crisis. What they really represent to you – the investor – is a period of volatility in which your investment values can fluctuate, sometimes greatly. The key question is: why shouldn’t you reduce your exposure to this uncertainty? Why shouldn’t you sell your equities?
Let’s explore how markets have responded after significant financial crises or global events.
The Market’s Response to Crisis
Performance of a Balanced Strategy: 60% Stocks, 40% Bonds (Cumulative Total Return)**
As the chart shows, the disciplined investor who weathered these periods of heightened volatility and uncertainty has been rewarded for doing so. We don’t want to hide the fact that recessions can be painful. We understand how hard you have worked and are working to reach your financial goals. But here is our challenge to you: rather than basing investment decisions on the financial media’s predictions of which way bond or equity markets are headed, tune out the noise and take solace knowing that you’re well positioned to handle these moments. Last year, this year, next year – that approach is a timeless one.
Principles worth repeating
When the media ramps up their noisy efforts in 2020, be it around the US election or some other event, we ask you to remember these principles:
- We are long-term investors, working steadily toward achieving our lifetime goals. We make absolutely no attempt to forecast the global markets.
- The benchmark we should be most focused on is the one that indicates whether you are on track to accomplish your financial goals.
- We believe in diversifying across markets and asset groups to manage risks and pursue higher expected returns.
- We stay disciplined and maintain a long-term perspective, no matter how bumpy the ride can feel at times.
A message from the team
As we say goodbye to the last decade and look ahead to the years to come, we want to take a moment to appreciate all of our clients, new and old, for entrusting us to support you and your family as you work towards your financial goals. It truly is our honor to be in this position and it is a responsibility we do not take lightly. We hope the coming decade is full of special memories, good health for you and your family, laughter shared with friends, and moments of joy.
Danielson Group Wealth Management
1. Declines are defined as points in time, measured monthly, when the market’s return since the prior market maximum has declined by at least 10%. Declines after December 2017 are not included, but subsequent 12-month returns can include 2018 returns. Compound returns are computed for the 12 months after each decline observed and averaged across all declines for the cutoff. US markets (1926–2018) are represented by the S&P 500 and Developed ex US markets (1970–2018) are represented by the MSCI World ex USA Index.
* Source: S&P Dow Jones Indices. Past performance is not a guarantee of future results. In Canadian dollars. Index is not available for direct investment. Performance does not reflect the expenses associated with management of an actual portfolio.
** In US dollars. Represents cumulative total returns of a balanced strategy invested on the first day of the following calendar month of the event noted. Balanced Strategy: 12% S&P 500 Index,12% Dimensional US Large Cap Value Index, 6% Dow Jones US Select REIT Index, 6% Dimensional International Marketwide Value Index, 6% Dimensional US Small Cap Index, 6% Dimensional US Small Cap Value Index, 3% Dimensional International Small Cap Index, 3% Dimensional International Small Cap Value Index, 2.4% Dimensional Emerging Markets Small Index, 1.8% Dimensional Emerging Markets Value Index, 1.8% Dimensional Emerging Markets Index, 10% Bloomberg Barclays Treasury Bond Index 1-5 Years, 10% Citigroup World Government Bond Index 1-5 Years (hedged), 10% Citigroup World Government Bond Index 1-3 Years (hedged), 10% BofA Merrill Lynch 1-Year US Treasury Note Index. The S&P data are provided by Standard & Poor’s Index Services Group. The Merrill Lynch Indices are used with permission; copyright 2017 Merrill Lynch, Pierce, Fenner & Smith Incorporated; all rights reserved. Citigroup Indices used with permission, © 2017 by Citigroup. Bloomberg Barclays data provided by Bloomberg. For illustrative purposes only. Dimensional indices use CRSP and Compustat data. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results. Not to be construed as investment advice. Rebalanced monthly. Returns of model portfolios are based on back-tested model allocation mixes designed with the benefit of hindsight and do not represent actual investment performance. See Appendix for additional information.