Weekly Market Commentary – Avoiding recency bias after a year like 2019

The Markets

2019 will be a hard act to follow.

Investors may find themselves reluctant to ring out the old and ring in the new this week. During 2019, stock and bond markets delivered exceptional returns.

Ben Levisohn of Barron’s reported the Dow Jones Industrial Average was up 23 percent at the end of last week, the Standard & Poor’s (S&P) 500 Index had gained 29 percent, and the Nasdaq Composite was up 36 percent.  The S&P 500 and Dow both closed at all-time highs.

Bond indices showed gains in the United States and around the world. The Bloomberg Barclays U.S. Aggregate Total Return Index was up 8.87 percent at the end of last week. Its global counterpart, the Bloomberg Barclays Global Aggregate Total Return Index, was up 6.63 percent for the same period.

After a year like 2019, when stock indices delivered exceptional returns, investors’ perceptions about their appetite for risk can change. Great market performance has a way of persuading people their tolerance for risk is higher than it has been in the past. The phenomenon has something to do with recency bias, which is a tendency to remember and weight recent events more heavily than past events.

In other words, during bull markets some people tend to forget about bear markets.

2019 was a wonderful year, but not every year will be like 2019. At the end of last week, the average annual return for the S&P 500 Index over the last 60 years, with dividends reinvested, was about 9.5 percent.

The fact that 2020 may not be like 2019 does not mean it’s time to sell. Successful financial plans and investment strategies should include well-diversified portfolios that are grounded in the investor’s life and financial goals. Every strategy and portfolio should be reviewed periodically and modified when goals have changed, a major life event has occurred, or the investor’s risk tolerance has changed.

If you would like to talk about your strategy and review your portfolio allocations, give us a call. We’d like to hear from you.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.  Sources: Yahoo! Finance, MarketWatch, djindexes.com, London Bullion Market Association.  Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

THE HOLIDAYS ARE ALMOST OVER

Ahh, the season of good cheer and regifting is coming to an end. Before we head into 2020, the Ohio Department of Transportation deserves a holiday salute for promoting safe driving with holiday humor. About 130 highway message boards across the state offered communications like these:

• Life is fra-gee-lay. Drive safe.
• Stay to the right. Santa needs the left lane tonight.
• If your relatives make you drink, don’t drive.
• Can I refill your eggnog, Eddie? — Clark
• Deck the halls/ No phone calls/ Fa la la la la
• Drop the phone. We triple dog dare you.

Weekly Focus – Think About It

“I hope that in this year to come, you make mistakes.

Because if you are making mistakes, then you are making new things, trying new things, learning, living, pushing yourself, changing yourself, changing your world. You’re doing things you’ve never done before, and, more importantly, you’re doing something.

So that’s my wish for you, and all of us, and my wish for myself. Make new mistakes. Make glorious, amazing mistakes. Make mistakes nobody’s ever made before. Don’t freeze, don’t stop, don’t worry that it isn’t good enough, or it isn’t perfect, whatever it is: art, or love, or work, or family, or life.

Whatever it is you’re scared of doing, do it.  Make your mistakes, next year and forever.”

–Neil Gaiman, Author

Sincerely,
Your Team at Wellspring Wealth

David Glover	Fredrick Livingston	Mark Winston	Dennis Wright	Caleb Tucker	Andrew Wright	Valeri Bishop
AIF®	CLU®,CFP®	CFP®, AIF®	AEP®, ChFC®, CLU®	CFA®, AWMA®, AAMS®		AIF®

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