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Lessons Learned From the Stock Market Over the Last Decade

By: Terry Roe
Published in Articles on February 17, 2021

My partner, Aaron Sautter, has written a great article entitled “2020 Stock Market Lessons.” The lessons learned in 2020 are a synopsis of investment lessons repeated over the decades. I would like to take you back and revisit the last decade, 2010–2019. Each of us, no doubt, experienced many ups and downs during the decade. However, very few of us experienced only the joys of life and none of the heartache. The financial markets are a bit like life, full of ups and downs. Unfortunately, unlike with life, you do have the option to sit out the financial markets, but I hope you don’t. So let’s look back at the last decade.

Imagine it is early January 2010 and you are reading a review of the financial markets. Investors have been on a roller coaster over the past three years, living through the stress of the global crisis and market downturn of 2008–2009, then experiencing the recovery that began in March 2009 and is still going strong.

Investors who rode out the market’s slide are beginning to be rewarded. But the rebound is only 10 months old, and the markets have a long way to go to reach previous highs. Opinions are mixed about what might unfold in the coming year. A December 2009 headline in the Wall Street Journal underscored the uncertainty: “Bull Market Shows Signs of Aging.” The publication pointed out that, although stocks have rallied and indices are on the rise, worries are mounting that the market is running out of steam.

From the vantage point of early 2010, you may be wondering whether to stick with your investment plan or move into cash (i.e., to sit this one out) and wait for more evidence that the markets have recovered. Now, look at 2019, the end of the decade, and consider what the global equity markets delivered to investors who stayed the course.

On a total return basis, global stocks more than doubled in value from 2010 to 2019. The MSCI All Country World IMI Index, which includes large and small cap stocks in developed and emerging markets, had a 10-year annualized return of 8.91%. From a growth-of-wealth standpoint, $10,000 invested in the stocks in the index at the beginning of 2010 would have grown to $23,473 by end of 2019.

Despite positive annual returns during most of the decade, investors had to process ever-present uncertainty arising from a host of events, including an unprecedented US credit rating downgrade, sovereign debt problems in Europe, negative interest rates, flattening yield curves, the Brexit vote, the 2016 US presidential election, recessions in Europe and Japan, slowing growth in China, trade wars, and geopolitical turmoil in the Middle East, to name a few.

The decade also brought technological advances in electronic commerce and cloud computing, the global embrace of the smartphone and social media, increased automation and enhanced artificial intelligence, and new products such as electric cars and early iterations of self-driving ones.

Looking back, you could conclude that the decade had its share of uncertainty – just like the decades before and decades to come. But overall, the US equity market experienced moderate volatility compared to previous decades.

Benefits of Diversification

Investors who committed to global diversification and to areas of the market associated with higher returns – small cap stocks and value stocks (i.e., stocks trading at low relative prices) – were challenged over the past decade. Investors were generally rewarded for holding emerging market stocks and developed international stocks. During the decade, the US market outperformed developed international and emerging markets.
The performance of value stocks vs. growth stocks (i.e., stocks trading at high relative prices), and small cap stocks vs. large cap stocks, also varied between decades. Small cap and value stocks outperformed large cap and growth stocks in the 2000s, while the 2010s produced mixed outcomes. Small caps underperformed large caps in the US and emerging markets but outperformed in the developed international market. Value underperformed growth in all three market regions. Despite underperforming large cap and growth in the US, small cap and value delivered 11.83% and 11.71%, respectively, for the decade.

Enduring Principles

Here’s what we can learn from the past decade (and the ones that came before it and probably the ones to come): Despite all the change and uncertainty, the fundamentals of successful investing endured. Diversify across markets and asset groups to manage risks and pursue higher expected returns. Stay disciplined and maintain a long-term perspective. Take the daily news with a grain of salt and avoid reactive investment decisions based on fear or anxiety. Don’t try to predict future performance or time the markets. Instead, develop a sensible investment plan based on a time-tested philosophy and stick to it; don’t make the mistake of sitting this decade out.

Terry L. Roe is a financial advisor with Onyx Financial Advisors, LLC, an independent fee-only registered investment advisory firm located in Idaho Falls, Idaho. He can be reached at (208) 522-6400 or www.OnyxFinancial.com. Published January 31, 2021 in the Post Register Financial Planning Insert.