Major Asset Class Returns, 2019 Year-End Review

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I used to add up my net worth every month (if not more frequently), but nowadays I limit myself to quarterly portfolio checks to coincide roughly with when my dividends arrive. There is so much daily noise about stock market prices these days that I’ve found it much more relaxing this way. However, I do enjoy a brief reflection at the end of the year. Here are the annual returns for select asset classes as benchmarked by ETFs per Morningstar after market close 12/31/19.

Commentary. As of 2017 year-end, the performance of every asset class was positive. The lowest positive return was from short-term US Treasuries. As of 2018 year-end, the performance of nearly every asset class was negative. The highest return was from short-term US Treasuries.

As of 2019 year-end, we find ourselves again in a situation where the return of nearly every major asset class was positive. And yet again, the lowest positive return was from short-term US Treasuries. Short-term Treasury bonds are slow, steady, and safe… but you also need to be in the risky asset game to reap the rewards when things are hot.

The Vanguard Target Retirement 2045 fund (roughly 90% diversified stocks and 10% bonds) was up 21.4% in 2017, down 7.9% in 2018, and up 24.9% in 2019. The benchmark for our personal portfolio, a more conservative mix of 70% stocks/30% bonds as we are close to living off it, was up 17.1% in 2017, down 5.9% in 2018, and up 21.2% in 2019.

The more stocks keep going up, the more we are reminded that eventually they will go down again. There remains a lot of anxiety about a recession looming around the corner. A famous quote (perhaps by Gary Shilling?) states that “Markets can stay irrational longer than you can stay solvent.” This is usually brought up during stock market crashes, but also applies during bull markets. Yes, stocks will have another bad streak eventually, and future 10-year returns do look rather tepid, but you can also miss out on big gains while sitting on the sidelines waiting for that to happen.

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.

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  1. Did you see that the best asset class of the decade was bitcoin?
    But there is no mention of it at all on this blog.
    I really like this blog but it seems to be prejudiced against bitcoin and crypto, which is unfortunate since people may be missing out on a great investment.

    • Bitcoin is not an investment. Pure speculation.

      • That is an opinion which is not shared by everyone. It is also an opinion that may have kept you from investing in the best asset of the last decade. Don’t make the same mistake this decade!

    • Prejudice is a “preconceived opinion that is not based on reason or actual experience”. I believe that after researching BTC, a reasonable person could both view it as either as a promising part of the future or as still too young and unproven. I’ve bought and sold some BTC, and continue to hold a little bit for research purposes, but I don’t view it as an established major asset class at this time.

  2. Hi Jonathan, congratulations on a successful year of 2019. Let’s all be prepared for 2020 🙂

    Btw, are you switching your (partial) holdings in mutual funds to their corresponding ETFs, because of lower expense ratio?

    • That’s a good question, the truth is that I have thought about it but then put it aside and haven’t actually taken action. Have you done so? Any hiccups?

      • Same here: I’ve looked at it and pushed it out for two reasons:
        1) inability to purchase partial shares of ETFs (with vanguard atleast),
        2) inability to do automated investments into ETFs

      • As Mihir mentioned in his first point, I tried to avoid partial shares of a stock/ETF. As long as I have whatever amount of money, say $100, I could buy maybe 0.687 share of some mutual funds which is prefect fine to me. I prefer to go with the amount of money than the number of shares. Save, buy, and hold. EFTs sounds too much for me 🙂

        In addition, the lowered of 0.01 expense ration does not drive too much motivation. If it went to a 0.1 difference, I might to try ETFs? We will see what happens..

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