3 Investing Takeaways From the 2010's

DEWITT, Mich. - Dec. 16, 2020 - PRLog -- The decade has ended with the stock market capping off an extraordinary 10-year stretch. This may have you thinking either "all good things must come to an end" or "let the good times roll." In our view, both are valid.

You may have heard some people saying, "This time it's different" – but history has taught us that those can be dangerous words when it comes to the markets. So what does this past decade tell us about the next one?

A Quick Recap

This decade started off from the ashes of the financial crisis and finished with a strong rally to record highs. The 2010s were characterized by a slow-but-steady economy, record-low rates and above-average stock market returns.

1. Absence of a downturn drove the market's upside.
This past decade was unique in that it was the only one on record not to experience a recession, and only the second decade not to experience a bear market, which is a drop of 20% or greater. For perspective, the market has experienced a bear market on average about once every 3.5 years.

2. A decade's DNA shapes its performance.
Broad trends in the economy and financial markets have shaped investment performance over the decades. This is why fundamental conditions, such as economic growth, corporate profits and interest rates, receive the heaviest weight in our market outlook.

• In the 1950s, it was post-war industrialization that led to strong growth in the following decade.
• High inflation and stagnant growth of the 1970s gave way to a rising consumer in the '80s.
• The '90s internet boom was followed by rising housing debt in the 2000s.
• The sluggish but persistent growth of the 2010s, which was shaped by extraordinary central bank stimulus, has provided a decent starting point for the 2020s.

3. A longer-term approach has been successful.
Calendar years and decades provide tidy bookends for evaluation, but keep in mind that even though we're moving from one decade to another, this is just a reference point in time. Market cycles and, more importantly, your investment goals don't align neatly to 10-year windows.

Looking at rolling 10-year periods since 1940, the S&P 500 delivered a positive return for more than 97% of that time frame. In addition, a well-diversified portfolio including bonds, which have historically risen during stock market declines, helps to smooth the performance of portfolios over time.

Timing matters, of course – but use the timeline of your financial goals, rather than the calendar, to gauge your performance.