People in the financial/investment industry like to throw around past performance numbers, especially when they look significantly more attractive than they did, say, just a few months ago. To explain, let’s look at the average annualized return on the S&P 500 Index for the last 10 years – not including this week’s nasty selloff.
As of the beginning of last week, the S&P 500 Index had a 10-year average return of 14.7%. Pretty impressive, right? Yet at the end of last year (December 31, 2018), the S&P 500’s 10-year average return was only 8.5%. That’s a huge difference!
Here’s why. You remember the financial crisis and Great Recession of late 2007-early 2009 when the S&P 500 plunged just over 50%, marking the worst bear market since the Great Depression. The bottom in the S&P 500 came on March 9, 2009 just below 673 and it’s been up, up and away ever since.
The reason the S&P 500’s 10-year return looks so much better today than just a few months ago is because the last few really bad months of the 2007-2009 bear market have now rolled out of the 10-year time window. Starting in April, all of those losing months were gone.
No wonder the 10-year return looks so much better!
Many investors make decisions based on 10-year performance records, but as we can see in this example, the latest 10-year average for the S&P 500 may be misleading. Investors could easily think that they should experience average annual returns of nearly 15% (14.7%) going forward, when that is not likely to be the case.
The disparity of 14.7% vs. 8.5% is huge. It gets even worse as we look back 20 years. The average annual return for the S&P 500 Index over the last 20 years ended in April was only 6.0%. That 20-year stretch included two major bear markets: the “dot.com” decline from March 2000 to October 2002 and the late 2007-early 2009 slide of over 50%.
Going all the way back to 1928, the annualized return for the S&P 500 was much better at 11.0%. But let’s face it: few (if any) people alive today have held diversified stock portfolios continuously since then, so that rich return may not be much of a comfort.
In the investment business, we repeatedly caution that “past performance may not be indicative of future results.” It’s true! But don’t expect the next salesperson who calls or e-mails you to point out why 10-year stock index returns look so much more attractive today than just a few months ago.
Alpha Advantage Strategy Minimum to Double June 1
At Halbert Wealth Management, we continually search the universe of professional money managers to find the relatively few who deliver “absolute returns” on a consistent basis. Most of the equity money managers we recommend have a sophisticated system or strategy that they have developed over the years to make money in stocks and/or stock funds.
Over the years, I have always recommended that our clients diversify even further by investing with multiple money managers we recommend. To make that even easier, we introduced our Alpha Advantage Strategy in early 2014, which features three separate equity money managers in a single account. Each manager invests its one-third allocation based on its proprietary strategy or system. It has been very successful as you can see in our FACT SHEET.
Each manager has the ability to be long, short or in cash depending on their strategy’s signals, so Alpha has the potential to make money in a rising or falling stock market environment. Of course, past performance may not be indicative of future results. Customer accounts are held at Guggenheim Investments.
Normally, I don’t mention our investment opportunities in the Blog, but there is a reason I wanted to bring up our Alpha Advantage Strategy to you today. The reason is that Alpha’s minimum investment is increasing to $100,000 on June 1. However, if you contact us before June 1, you can still invest at the old minimum of $50,000 if suitable for your portfolio.
You can call us at 800-348-3601 or e-mail us at info@halbertwealth.com.
Given the greatly increased volatility in the stock markets since late last year – which is here to stay in my opinion – our Alpha Advantage Strategy may be a great choice for you. I would love to have you as a client! Call us if you have any questions, but be sure to do it before June 1.
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