Welcome to the New Year and, more importantly from an investment standpoint, the new decade!

One year ago the First Trust Investment Group projected that the S&P 500 would be up nearly 25% by the end of 2019. If you remember, we had just suffered through an extremely negative 4th quarter of ’18 and at that tumultuous time, not many analysts were anticipating gains anywhere close to this. First Trust was one of the few optimistic voices in early ‘19, but they have also been so over the past decade – and they’ve been correct. I’m sharing this article also because it’s important to remember that calendar year returns are not necessarily relative for two reasons: 1) Investment strategies should have a much longer prospective that one year, 2) Choosing any beginning and ending date for evaluating returns is completely arbitrary.

2020 Projections (First Trust Investment Group)

The S&P 500 index was up nearly 30% during calendar year 2019! But if we look back to October of 2018 (just before a dismal fourth quarter where markets dropped as much as 20%) the level of the S&P at that time was just less than 10% lower than it was at the end of ‘19. So, after climbing out of the -20% hole that the fourth quarter left, the S&P rose another 9% during 2019. Not too shabby, but not nearly as drastic as the 30% number that everyone is enamored with. In general, our client accounts did not suffer the full 20% pullback of fourth quarter ’18, so there was not nearly as much ground to make up entering the new year. This illustrates one of the main reasons for diversification and implementation of portfolio hedges, attempting to protect clients from fully participating in downturns while capturing a healthy portion of the upside.

This points us toward a more correct focus when evaluating investment performance. Rather than competing with the annual ups and downs of a market index over an arbitrary time frame, a better assessment of an investment strategy is how well it is tracking towards personal long-term goals. Investors should be measuring their portfolio’s performance on how well it provides partial protection during corrections, while maintaining enough growth exposure to achieve desired goals. Our comprehensive financial planning tools allow us to provide this ongoing measurement. We are able to actually produce what we call a “Probability Score” that can become a client’s own personal index.

I hope that First Trust is correct once again and we see continued growth like they are projecting. They certainly make a compelling argument for it. Whatever direction the market goes in the short term, we will remain focused on the better and more crucial “investment return” of maintaining a plan that meets client’s needs and desires. 

May your year be blessed and prosperous!

Jack Schniepp is a CERTIFIED FINANCIAL PLANNER™ (CFP®, ChFC®) and the owner of Cascade Financial Strategies. CFS is a registered investment advisor licensed in Oregon, California and Idaho. They specialize in socially responsible investing which integrates environmental, social, and corporate governance (ESG) criteria into portfolio construction.

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