April 25, 2023
Considerations For Planning in the 2020s and Beyond
Head of Investment Research Jared Kizer shares three reasons why the last decade was so profitable for the U.S. stock market and the challenges investors will face in the 2020s and beyond.
Jared Kizer: So today I'm going to take on a little bit of a different type of topic. A lot of these (Buckingham Weekly Perspective videos) were kind of either reacting to current market events - which of course makes a ton of sense when that's appropriate - or focused on evergreen-related topics, like previewing a particular asset class or strategy, things that we think will basically always be true about that particular strategy or asset class that we're talking about. But today I want to talk about a little bit of a longer-range kind of investment planning question, which is how to think about investing in the 2020s or some of the things that come to my mind when I think about long-term investors. So, this is not what might happen over the next year, even the next two to three years. But sitting where we are today into the 2020s at this point, what are some things to think about in contrast relative to past periods that investors have lived through? So, I'm going to touch on a few of those today and really do it by contrasting what we saw in the 2010s - not that long ago at this point - relative to what I think we'll see over the long-term starting in the 2020s. Hopefully, this also goes without saying even though we're talking about the longer term, we're still kind of looking into the future. So, there's no way to know for certain what exactly will happen, but I think these are reasonable things to think about going forward as we march forward into the 2020s.
The U.S. Market Did Extremely Well in the 2010s
Jared Kizer: So, let's start by talking about the 2010s. When I think about the 2010s, one of the really good things about the 2010s, from an investment perspective, is the U.S. market did exceedingly, exceedingly well over the 2010s. No doubt from a risk-adjusted return perspective, one of the best decades that the U.S. market has ever had, and we've been tracking U.S. market data for a long time at this point. So that's actually saying something, like one of the best decades risk-adjusted return wise that we've seen from the U.S. market. Bullet point here is out of all the developed and emerging market countries that are tracked by the well-known index providers like MSCI, the U.S. market was the single-best performing country out of all of them. We're talking about 50-plus countries, so very, very good decade for the 2010s. Also we saw very low interest rates and low rates of inflation. Of course, we've seen that change, and I think that could be a somewhat persistent change relative to the 2010s. A second thing that comes to my mind is a period of very low interest rates. And then for the way that we think about investing, the third thing that comes to my mind is in the 2010s we saw growth stocks that are growing at higher earnings rates. The names that are typically more well known did quite a bit better than value stocks, but that's counter to what we know that the long-term evidence shows.
What Challenges Will Investors Face in This Decade
Jared Kizer: So, when I think about translating those into some of the challenges that were put upon investors as we entered the 2020s, the fact that the best-performing asset class was the U.S. market certainly has tempted a lot of investors. I saw this in particular at the tail end of the 2010s - to abandon other parts of a diversified portfolio or to lessen exposure to things that were not U.S. equities. Because people kind of kept seeing the U.S. market to be so dominant, a lot of investors, of course, not all but many, let that influence, I think far too significantly, how they thought about investing on a go-forward basis. Effectively saying I just think they thought we were going to just keep seeing the U.S. market be very dominant on a go-forward basis. So, while it was good and with respect it definitely challenged investors to stay disciplined in investing in things that were not U.S. equities.
The Investment Landscape Looking Forward
Jared Kizer: So, when we look forward, I think the main thing that comes to mind if you wanted to summarize thoughts, for a long-term investor, is that it's highly unlikely - nothing's ever impossible - but highly unlikely that we'll see the dominance of the U.S. market continue. Meaning in the sense of better than everything else over an extended period of time, just not something that tends to happen over consecutive decades, and I think that's the first thing that I would say for investors looking forward. I've already hit on number two, which is again, we never know, but I think it's certainly possible, that we will be in some type of higher interest rate environment and potentially higher inflationary environment over the longer term compared to both of those being very low in the 2010s. So that's another thing to think about from an investment point of view. And then when I think about the broader stock markets, what comes to mind is remaining dedicated and thinking about if you don't already have an allocation to international equities versus U.S., I think it's very important going forward to be globally diversified and that we think about the value versus growth dimension. We kind of saw in the 2010s growth does really well. I think as we look forward from here, we've seen this occur a little bit already in the early 2020s. You can think about having some type of value-oriented allocation within a stock portfolio. So hopefully, those are some helpful kinds of longer-term thoughts, a little bit different topic than we typically touch on here. If you have other questions you'd like for us to tackle, feel free to reach out to your advisor and submit questions that way or click the link below and you can submit questions there as well. Thanks.