2019 Market Outlook: Where to Put Your Money

Ted Toal, CFP®

Did that subject title grab your attention?  I’m sure it did. And the financial media counts on that!

In the ever-increasing competition for clicks, the financial media headlines claiming to lead you to riches abound!

With the arrival of a New Year comes the annual “Hot Stocks“ and “Where to Put Your Money” headlines. Each year these articles provide speculations by the palm readers/fortune tellers/clairvoyants of the financial markets. They state with certainty (and no actual predictive data) that you can earn $$$$ if you just follow their advice.

I’m sorry to disappoint. This article does not offer 2019 predictions. Rather, we offer why you should always ignore these headlines and articles.

To better understand why, let’s take a look back at last year’s “predictions.”

Barron’s Wall Street Forecast:

Barron’s surveyed ten Wall Street Economists for their 2018 S&P 500 index return predictions. The predictions ranged from 2675 to 3100 with the mean estimate being 2840.

We now know the S&P 500 closed 2018 at 2507. Only one economist correctly predicted the index would decline. None of the remaining nine economists predicted the 2018 S&P index decline, even though they have multitudes of economic data at their fingertips. No one (not even real economic experts) can accurately predict the market with any consistency.

2018 S&P 500 Index Return - with dividends reinvested

Will the Stock Market Crash in 2018? Here's What Wall Street Predicts:

This was the headline from Fortune on December 28, 2017. The “Wall Street” consensus was no, the market wasn’t headed for a crash. Kane Brenan from Goldman Sachs was quoted, “We think equities will continue to outperform in 2018.”

Brenan further stated, “Within equities we think emerging markets are a particularly interesting place to look.”  Here’s a visual to see how those predictions turned out. (Source: Visual Capitalist)

2018 Various Asset Class Returns (Price Only)

Economies Overseas Will Rebound:

In December 2017 Money Magazine quoted Stephen Wood, who suggested investors capitalize on an Emerging Market rebound by selling gains of U.S. stocks to buy International Developed and Emerging Markets. Of course, with hindsight, we know this was a bad idea. 2018 returns listed below:

  • S&P 500 (U.S. Stocks): -4.38%
  • MSCI EAFE Index (International Developed Stocks): -13.36%
  • MSCI Emerging Markets Index: -14.25%

Money Magazine specifically recommended two mutual funds to take full advantage of the predicted boon in Emerging Markets:  Oakmark International and T. Rowe Price Emerging Markets. How did these funds perform? Unfortunately for their investors, each fund performed worse than the indexes:

  • Oakmark International: -23.43% - MSCI EAFE: -13.36%
  • T. Rowe Price Emerging Markets: -16.20% - MSCI Emerging Markets: -14.25%

Of course, at RCS we fully believe investors should diversify and include International and Emerging Markets in their portfolios. We’re just smart enough to realize (and honest enough to admit) we cannot predict future performance.

Energy may rebound:

Money Magazine cited poor performance of energy funds in 2017 and suggested Energy could be due for a resurgence. They recommended iShares North American Natural Resources. Unfortunately, this ETF declined -21.57% in 2018, much worse than the -4.38% S&P 500 decline. Further, of all available sectors of the market, Energy finished at the very bottom for 2018 performance.

Bullish on Bitcoin:

Ahh yes, Bitcoin. Don’t know what Bitcoin is? Great, consider yourself lucky!

For those interested, Bitcoin is a “digital currency.” The price of a single coin at any given time is based on what someone else is willing to pay, like gold and silver. Bitcoin had a tremendous return increasing from about $1,100 per coin in 2016 to over $17,000 by December 2018. These returns, of course, attract speculators willing to bet the coin will go even higher. Some predictions claimed Bitcoin could reach $20,000 per coin in 2018.

The future remains uncertain for digital currencies but, it seems obvious that  Bitcoin was overinflated, especially considering it has no real intrinsic value. Bitcoin crashed back down to earth settling at its current price under $4,000 per coin, a decline of about -76% from it’s high.

2018 Bitcoin Return

RCS Financial Planning will not invest your assets based on speculation or unsubstantiated market predictions.  We choose to strive for lifetime returns by following  a time tested investment strategy.

  1. Do not time the market. Ignore the headlines. Instead, develop an asset allocation strategy based on your own tax situation, financial planning goals, expected return, and, most importantly, your investment horizon.
  2. Own and preserve a well-diversified portfolio to include stocks form the U.S., International Developed Countries and Emerging Markets. Keep an appropriate amount in Fixed Income.
  3. Don’t be afraid of equity exposure.  The real long-term risk of equities is not owning them.
  4. Do not panic. Many people invest based on fear or greed. It is human nature itself that makes many people incapable of investment acumen. Experienced investors can distinguish between temporary swings in the market and permanent losses, and they expect periods of market decline.

Wishing you a healthy and wealthy 2019!

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