2019 stock market review (and how it can help your portfolio in 2020)
2020 is here which means the book is closed in 2019. It turned out to be an amazing year for investors so let’s take a look at some of the detailed data from the world of markets and investments to see how everything fared for the year.
Bonds weren’t boring
For the past few years, its been a lot of nothing in the bond markets with low single-digit returns since 2014 with bonds but in 2019, who would have guessed that bonds would have given solid returns for safer investors:
- Inflation = 2.17%
- Treasury Bills = 1.6%
- Short term Bonds = 3.1%
- Bond Universe = 6.9%
At the beginning of 2019, no one I know predicted a rally in the bond market. Given the low-interest environment and the widely accepted outlook that you can’t make a lot of money with bonds, it was a pleasant surprise to see this asset class give a nice return to conservative investors. The last time we saw a price increase in bond returns was 2014 when bonds returned 8.8%. I’m not sure anyone (myself included) expects a repeat of 2019 for bonds.
Canada finished strong
2019 was a stellar year for the Canadian Stock Market finishing the year with a 22.9% return. This was a nice rebound from 2018 where the TSX lost 8.9%. I remember reading some market forecasts for 2019 at the beginning of the year and there was a lot of caution and pessimism flowing because of the drop in the 4th quarter of 2018 but now in hindsight, 2019 was a great year for Canadian investors:
|S&P/TSX 60 Large Cap||21.93||-7.58||9.78||21.36||-7.76|
|S&P/TSX Small Cap||15.84||-18.17||2.75||38.48||-13.31|
10 of the 12 months in 2019 saw positive returns and only May and October saw negative returns. In terms of market sectors, the 3 top-performing sectors in the TSX were Information Technology, Utilities, and Industrials. All sectors in Canada finished the year with positive returns except 2: Energy and Health Care.
Home runs in the US
Similar to Canadian forecasts, there were also a lot of gloomy market outlooks for the US market at the beginning of 2019. Instead, the S&P500 posted an amazing return of 31.5%. If we convert the return to Canadian dollars, the year finished with a 24.8% return because the Canadian dollar appreciated a bit to the US dollar over the 12 months.
|S&P500 (in Cdn$)||24.84||4.23||13.83||8.09||21.59|
|Russell 2000 Small-Cap (Cdn$)||19.18||-3.00||7.12||17.11||14.64|
|Russell 2000 Small-Cap||25.52||-11.01||14.65||21.31||-4.41|
If we look outside of North America, International Markets also finished the year strong. The MSCI EAFE index posted a 22.31% return for 2019. It was 16.45% when converted to Canadian dollars. In fact, according to MSCI data, every market in the world finished 2019 with a positive return.
The Top 3 markets in the world were (all 3 boasting returns of greater than 30% for the year):
- New Zealand
Bottom 3 markets were:
- Hong Kong
How do we use this information to manage our portfolios?
Here’s a few personal thoughts around this report and these numbers
Why do returns look good in 2019? One perspective that I think is important is that snapshot performance can play a big role in making numbers look deceiving. 2019 is a prime example of this.
The Blue line is the 1-year return (22.9%) for TSX calendar year 2019 (Jan 1 to Dec 31). The rate of return is the slope between the start point and the endpoint.
The Redline is the 1-year return (15.7%) for the period exactly one month earlier (Oct 1, 2018, to Nov 30, 2019). Although this is a very good return, the blue line is showing a higher return simply because of the drop in late 2018 which is inflating the numbers for the calendar year 2019. Poor performance in the 4th quarter of 2018 helped make 2019 look really strong
The Greenline is the 1-year return of the TSX from July 1, 2018, to June 30, 2019. As you can see, this line is very flat with a 3.87% return. Three snapshots of the same market produce 3 different pictures.
So this time of year, we will find lots of predictions, forecasts, and guesses about what’s in store for 2020. Does any of this past information help us with managing our portfolios moving forward? My simple answer is not really. Having been in the financial industry for almost 30 years, I have participated in a lot of market forecasts and inevitably, I have been wrong more often than right. I can also tell you that I am always eventually right but never get the time frame correct.
When it comes to managing my own portfolio, I employ a “Keep it simple” strategy. I try to avoid predictions and forecasts. All I do from time to time is rebalance my portfolio of ETFs. Given what happened to markets in 2019, rebalancing will likely lead me to sell some of the profits I got in Canada and the US and buy some extra cash/fixed income and international investments.
Related article: My portfolio of ETFs
Related article: The power of rebalancing a portfolio
Benchmarking performance for 2019
One of the reasons like looking at the returns of the markets for the past years is not to help me look into the future but rather to give me an idea if my portfolio is producing a reasonable return compared to benchmarks. I don’t expect to be the best and I certainly don’t want to be the worst but I do want to be in the range. For benchmarking purposes, these returns would serve as reasonable returns for 2019.
- Conservative portfolio return = 9% to 11%
- Balanced portfolio return = 12% to 15%
- Growth portfolio return = 15% to 19%
|1 Year||3 Year||5 Year||10 Year|
|Conservative Portfolio (30/70)||10.70||5.24||4.92||5.79|
|Balanced portfolio (60/40)||15.58||7.38||7.10||7.96|
|Growth Portfolio (85/15)||19.21||8.97||8.73||9.48|
My RRSP portfolio of ETFs at Questrade returned 14.3% in 2019 and has a 5-year return of 6.1% which is where it should be.
My TFSA portfolio of ETFs at Questrade is a little more growth-oriented and as a result, it posted a return of 17.6% and has a 5-year return of 8.9%.
Liz’s RRSP portfolio is in a balanced mutual fund in a Group RRSP at Manulife. It finished the year with a return of 13.8% and a 5-year return of 6.8%.
Our RESP portfolio with JustWealth is more conservative as the kids ate getting close to post-secondary education. As a result, the 1-year return was a little lower at 11.8% (I don’t have a 5-year return because the money has not been there that long)
I am satisfied that the returns of our portfolios are consistent with the returns of the markets.
How did you do it in 2019?