2017 was a year full of headlines: the second-longest bull market of the last 100 years; a new Fed Chairman in Q4; Bitcoin and cryptocurrency; sweeping tax reform…
What did this mean for all of us?
The S&P 500
When it came to the markets, the S&P 500’s 22% return ranked 30th best since 1926, but the tranquility was remarkable with it moving by more than 1% on just eight days (vs. 27% of all days in the last decade).
Despite initial concerns about high PEs, the impact of rising interest rates on stocks, and uncertainty around the new administration, the S&P 500 rose 22%, producing an unprecedented positive total return every single month of the year. International stocks outperformed the United States and bonds; real estate, and commodities were all positive.
Gains throughout the year (especially in the final quarter) were helped by two magic words: “tax reform.” The new legislation slashes corporate tax rates, directly translating into higher income for most companies. While this allows for greater dividends, more share buybacks, and lower price-to-earnings ratios, the somewhat muted reaction upon the passage suggests most of the benefit is priced in.
A Look Forward
The new year is bringing higher valuations, political uncertainty, and – most likely – rising interest rates. But investors, bolstered by 2017’s consistent gains, seem to be much more optimistic than they were at this time a year ago. What does this mean? It again reflects the emotional challenges of investing in the market. Here’s where having a strategic investment plan that fits your unique needs can be beneficial to reaching your long-term goals.
We’ve said it before, and we’ll continue saying it: in our view, a good plan includes a diversified approach. While U.S. growth stocks have dominated this long bull market – which made owning anything else feel somewhat disappointing – one of the most common paths to failure is chasing what has done best in the past. Markets go up and down. Different segments come in and out of favor.
Our expectations are that those investors who stay diversified will likely end up with more money over time, and those who rebalance along the way should fare better still.