Chartology: January 2019

In this month’s edition of “Chartology”, Director of Investment Research Chris Maxey discusses how 8 major indices have ended every year since 1984.

Welcome to Chartology, our brief review of the most relevant and interesting charts in the world of investing in markets. Today we discuss the difficulty that was 2018. You can see a cross section performance for a major market indices—we looked at domestic stocks, both large cap and small cap, international stocks through developed in emerging markets, bonds with the Barclays U.S. Aggregate Bond Index, which is usually more government focused, as well as the Barclays U.S. Corporate High Yield Index for corporate issuers, commodities, as well as REITs.

Next, what we did was look at every single calendar year dating back to 1984 and assess how they performed in each one of those calendar years. Our primary reason for selecting 1984 as the start date is simply because most indices do not have critical data prior to that. Lastly, what we did was calculate what percent of those asset classes in any given calendar year generated a return greater than 1%.

It stands out very clearly is that 2018 is the first year of this period in which no asset class made more than 1% for investors. In fact, only one asset class was even positive, which was the U.S. Agg Bond Index, and it managed the gain of one basis point, or 0.01%. Very simply, what that told us is there was little benefit to diversification last year, and it’s quite a rare occurrence, because if you look at even difficult years such as 2008, bonds were able to provide a ballast and a source of return for investors, despite equity markets being quite difficult.

What’s also worth pointing out is the rarity of this level of futility. You can see a number of instances where the result was 100%, and what that tells us is that during that particular year, every single asset class was up more than a percent. So no matter where investors allocated, it would have been extremely difficult to lose money. That happens about 31% of the time, or one out of every three years, in which every asset class is up more than a percent.

We understand that 2018 was a difficult year for investors, but hopefully you found this useful in providing context around the unusual nature of investment performance across asset classes last year. If you have any questions about this analysis or would like to talk about markets in general, please reach out, or visit our website at www.BELR.com. Thank you.


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