Major Asset Class Returns, 2020 Year-End Review

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In terms of your retirement accounts, 2020 was definitely a year where it helped to simply ignore the constant market news and hold onto the assets that you believe have long-term promise. It was also a good year to own the entire haystack. Here are the annual returns for select asset classes as benchmarked by ETFs per Morningstar after market close 12/31/20.

Commentary. This NYT article explains Why Markets Boomed in a Year of Human Misery. A big part of that is the huge amount of money the US government and Federal Reserve will be spending around a trillion dollars on unemployment insurance benefits, stimulus checks, and forgivable PPP loans. The Federal Reserve also kept it easy for corporations to borrow money with liquidity and near-zero interest rates, but whether this keeps working for every future crisis is a big question.

The second major lesson is that we are bad at forecasting, so why listen to forecasts again at the beginning of 2020? Returns for 2021 could very well be much worse than 2020, even as we are soon able to see our family and friends in person again. I plan to focus on preparation instead of forecasting in all part of my life. In terms of investing, how can I make my portfolio and future income more resilient?

Investing at all-time highs might seem like a bad idea, but it actually hasn’t been historically. All asset classes were up at the end of 2019 as well. What I wrote last year applies again this year:

I won’t lie – I am pleasantly surprised at my brokerage statement this year, but I’m also wary about future returns. What keeps me owning a big chunk of stocks is that I am confident that the hundreds of business that I own through these ETFs and mutual funds will collectively make a profit, reinvest some of it to keep growing, and distribute some of it to me in the form of cash dividends. I am also confident that my US government bonds, municipal bonds, and FDIC/NCUA-insured bank certificates will keep the panic if a market drop does come.

The Vanguard Target Retirement 2045 fund (roughly 90% diversified stocks and 10% bonds) was up 16.3% in 2020. The benchmark for our personal portfolio, a more conservative mix of 70% stocks/30% bonds as we are closer to retirement, was up 11.5% in 2020.

Bitcoin. I didn’t list BTC because I don’t see it as a major asset class. The total value of all BTC in the world is now $600 billion (even at the current price of $32,000). The total market cap of gold is about $10 trillion. I have no well-researched predictions of about the long-term prospects of BTC. I’d only go as far as saying there is a case for a lottery-ticket-style investment of BTC, but I’d avoid nearly all the other random cryptocurrencies. (As in, I’d rather own BTC than spend what the average American does on lottery tickets, which adds up to over $250/year for every adult!) The appeal of BTC is that there is a finite amount (especially after the recent halving), and all these additional coins go against that. I own about 0.25 BTC via the Voyager app from a couple years back ($25 referral bonus).

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  1. The S&P was up significantly due to 5 or 6 stocks; take them out and the return is in the single digits.

    • Yes, and it was a bit unusual that Apple and Amazon were both big already and outperformed by a lot. Further, owning Tesla and Zoom further helped the Total US index funds beat the S&P 500 index funds. Some people got huge returns from owning those needles, but I was quite satisfied with owning the entire haystack.

  2. I’m so impressed to see BTC included in this post! I believe BTC has substance, but know I’m in the minority of conservative investors.
    I understand it’s not a traditional asset class and think you framed it fairly in the last paragraph. I prefer to “invest in the haystack”, but whole market/index ETFs currently have little/no exposure to BTC. So if BTC approaches the valuation of AAPL or Gold, putting a small % of a portfolio in BTC would help ensure ownership of the whole haystack.
    So thanks for mentioning BTC in a way that lets your readers research and decide without feeling judged by “I would never…” puritanism 😉
    BTW – I agree with Warren Buffet that you should not invest in something you don’t understand. But similarly, I’m annoyed at folks who bash something they don’t understand.

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