The Ups And Downs of 2010 And The Lessons Learned

The numbers are in, so let’s take a last look at 2010. In retrospect, we can readily see the year-round events that caused us grief, both emotionally and financially. To name a few:

  • A prominent researcher who had predicted the Great Recession, predicted the “biggest co-ordinated asset bust ever” for 2010.
  • A January Economist cover story warning of asset price bubbles asserted that US stocks were “nearly 50% overvalued.”
  • The “January Indicator” signaled negative stock market returns for the year.
  • The Gulf oil spill threatened US shores, along with global market stability amidst the uncertainty.
  • The May 6 “Flash Crash,” a sudden and unexpected plunge of about 700 points in the Dow, bewildered investors.
  • Hundreds of bank failures signaled continued weakness in the financial system.
  • A divided Congress passed a complex and expensive healthcare reform bill.
  • Residential housing remained weak.
  • The “Hindenburg Omen” generated a “sell” signal in August, portending disaster in the markets.
  • North Korea launched a deadly artillery assault against South Korea’s Yeonpyeong Island.
  • A financial crisis with no clear resolution gripped governments in Greece, Portugal and Ireland.

Retrospect lets us neatly summarize a year of stomach-wrenching headlines. But it also affords us a better view of the end results. You bet, there were a lot of dips, dives, false starts and dashed hopes. But in the end, the U.S. stock market delivered a satisfying, nearly 17 percent annualized return.

Similarly, world markets (as measured by the MSCI All Country World Index) yielded just under 13 percent annualized returns. But – and this is crucial –investors who reacted to the never-ending onslaught of worrisome news by abandoning or remaining outside of the markets were far less likely to capture what the markets ultimately delivered.

Of course a year is a blink of the eye. My three-year-old son may not have figured that out yet, but I sure have. As such, one year of returns that happened to have played in our favor doesn’t necessarily “prove” my case — no more so than a single year of bad returns would disprove it. But, 2010 does serve as a good, illustrative snapshot of how the market has generally performed over much longer periods.  It seems worth sharing for that reason.

In the short run, the hue and cry is loud, hard to ignore and impossible to predict. In the longer run, U.S. and global markets have delivered positive returns over time. Investors who remain focused on and steadily invested toward the horizon of their own financial goals are far more likely to reach their destination as planned. While capitalism is alive and breathing, investing according to these guidelines seems the best way to manage your personal assets in our global markets.

About the author

Tom Posey, CFP®, J.D., AAMS

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