2019 Year-End Investment Performance Reports: Reviewing Your Accounts and Reaffirming the Importance of Diversification and Rebalancing
Summary: Investors will soon receive their year-end performance reports for 401(k), 403(b), or IRA accounts. Last year's poor performers are this year's winners, emphasizing the importance of diversification. Review your accounts with these do's and don'ts, including rebalancing your portfolio to maintain an appropriate asset allocation. Learn about the 2019 bond, stock, and gold market returns and how to benefit from diversification within asset classes. With an overvalued stock market, now is the time to consider rebalancing.
Soon investors will be getting their 2019 year-end 401(k), 403(b) or IRA performance reports. As markets are wont to do, last year’s poor performers—stocks, high-yield bonds, longer-term bonds—reversed course and are this year’s winners, reaffirming that the one free lunch available to investors is diversification.
Reviewing Your Accounts Do’s and Don’ts
Diversification is the proverbial don’t put all your eggs in one basket. So, within an asset class like bonds, a diversified investor owns treasury bonds, corporate bonds, high-yield bonds, and international bonds, benefiting from the fluctuations from year to year in returns.
2019 Bond Market Returns
The Barclays Aggregate Bond Index, which consists of treasuries, government-related bonds, and corporate bonds, was up 8.72%. High-yield bonds (riskier corporate bonds) had a lackluster last year—but the Standard & Poor High Yield Corporate Index reversed course and was up 14.47% this year. Strangely enough, Treasury Inflation Protected Securities (TIPS), are up. The Barclays Capital U.S. Treasury Inflation Protected Securities Index is up 8.43%, even though what it is designed to protect against inflation remains tame.
The Stock Market and Gold Market Returns
U.S. stocks have had a great year recovering all the losses from last year’s terrible 4th quarter. The S&P 500 is almost 30% while the MSCI Index, which represents large and mid-cap stocks across 21 developed countries excluding the US and Canada, is up 25%. The MSCI Emerging Market Index is up 17%.
As of December 2019, the price of gold at \$1521 is still below its all-time price high of nearly \$2,000 an ounce in September of 2011 as inflation fears wain.
Rebalancing Your Portfolio
Because the stock market is significantly overvalued at this time, now is an excellent time to consider rebalancing your portfolio. By rebalancing instead of selling what has gone down or buying what has gone up, investors remain diversified but go back to their original allocation. So while diversification is about the eggs, asset allocation is about the basket. What percentage of your basket is going to be in stocks and bonds?
For example, if six years ago you were comfortable with an asset allocation of 60% in stocks and 40% bonds, now, after the doubling of the stock market, that portfolio might be 75% stocks and 25% bonds. Rebalancing simply puts your asset allocation and its risk level back to the original 60/40.
Retirement Accounts
Retirement accounts are ideal for re-balancing, because they enable you to buy and sell within the account with no tax consequence, and usually no fee or commission.
Investors approaching retirement who fail to rebalance might unwittingly end up closer to retirement with a riskier portfolio. That is why, when such investors rebalance, they might want to update their targeted allocations.
Nobody knows for sure what the rest of the year will bring, as the adage goes, past performance is not indicative of future results.
*Diversification, rebalancing, and asset allocation strategies do not assure a profit or protect against loss. These are the opinions of financial advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice.
Table 1:
Comparison of Returns of Different Asset Classes (Investors cannot directly invest in an index)
Asset Class | Return as of 12-31-2019 | 2018 Return |
Barclays Global Aggregate Bond Index | 6.84% | -1.31% |
S&P High Yield Corporate Index | 14.47% | -2.17% |
The Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index | 8.43% | -1.42% |
Barclays Aggregate Bond Index | 8.72% | -0.05% |
The MSCI Emerging Market Index | 17% | -14.57% |
MSCI EAFE Index | 25% | -13.79% |
S&P 500 Index | 30.43% |
These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third party sites should not be considered an endorsement of content, which we cannot verify completeness or accuracy of.
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Financial Advisor Tim Hayes
What Is My Financial Advisor Experience
I’ve held an industry securities registration for 30+ years and am subject to SEC and FINRA oversight.
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Most clients pay fee-only or an hourly rate. The size and complexity of the client’s wealth management and financial and retirement planning determine that fee.
Some clients pay a commission, mainly those with smaller accounts, i.e., Roth IRAs, some public-school teachers with 403b retirement accounts, or parents or grandparents who set up a 529 college savings plan.
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The first introductory and fact-finding appointment can be in-person or by phone. The next meeting where I provide my recommendations should be in-person. (For the time being, telephone, Zoom, and email are replacing some in-person meetings.)
Subsequent meetings during which we monitor your progress and investments can be done in-person or by phone, email, Zoom, or Skype – or, more likely, a combination of these meeting types.
Contact Tim
Tim has offices in Boston and South Dartmouth, Massachusetts. He’s licensed to handle securities in 8 states: Massachusetts, Rhode Island, New Hampshire, New York, New Jersey, Connecticut, Maine, and Florida.
