Investing

2019 stock market review (and how it can help your portfolio in 2020)

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:

  2019 2018 2017 2016 2015
S&P/TSX Composite 22.88 -8.89 9.10 21.08 -8.32
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.

  2019 2018 2017 2016 2015
S&P500 (in Cdn$) 24.84 4.23 13.83 8.09 21.59
S&P500 31.49 -4.38 21.83 11.96 1.38
Russell 2000 Small-Cap (Cdn$) 19.18 -3.00 7.12 17.11 14.64
Russell 2000 Small-Cap 25.52 -11.01 14.65 21.31 -4.41

International markets

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):

    1. Ireland
    2. New Zealand
    3. Netherlands

Bottom 3 markets were:

    1. Hong Kong
    2. Norway
    3. Finland

How do we use this information to manage our portfolios?

Here’s a few personal thoughts around this report and these numbers

Snapshot performance

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.

Market Predictions

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?

Comments

  1. Matt

    I agree with your approach of not trying to make sense of it all and just stick to the plan. Index investing within Canada, USA and overseas in equity markets will spread out the risk.

    However, for bonds, I just can’t get myself to take interest with the barely inflation returns on them.

    • Jim Yih

      Thanks Matt, I don’t think many people are excited about bonds. I view them as something needed for diversification and defense these days.

  2. Claude Mayrand

    Jim,

    None of us retirees are stock traders. We don’t have the skills, temperament and software to buy low and sell high to generate cash for a comfortable retirement.

    As to bonds, they’re a lost cause: a very poor return and a very poor taxation treatment.

    2016 was an extremely difficult year at its beginning. January and February were down months for all. The down trend was worse because most Day-Traders were also out of the market.

    I trade funds on the TSX, only; I’m just not smart enough to deal with currency issues and political shenanigans in other countries. The funds are managed by professionals who usually know what they are doing. I measure how well they are doing by the cash they pay me: their consistency and Yield are my initial criteria for choosing a fund; their tax treatment is another criterion and is why I avoid anything that pays me interest.

    In January and February 2016, I had to sell some funds and stocks because my Margin was too high. I was much busier than usual. I spent three times as many hours in those two months as I usually do to monitor and manage my portfolio during January. In March I bought back some of the sold positions and bought better ones.

    By December 31, my monthly income had increased .8% over January 1, and my portfolio value had increased by 26%. So far in 2017, my income is up 2.56% and my portfolio is up 6.13%.

    I used to study individual stocks and their Distribution experience. Now I search for funds (mutual, closed and open-ended) using TMXMONEY and Google Finance screeners.

    The funds are all managed by professionals: their websites are very informative, their Distributions are almost all very tax efficient, and the fund holdings are very diversified or very targeted.

    The focus of my investment strategy is monthly income. Nothing else matters, nothing, because I am one of the 60% of Canadians who don’t have a corporate or taxpayer funded pension.

    The stock market, specifically the TSX, is a barometer or benchmark of what’s happening to my portfolio value. Usually, these fluctuations don’t affect my monthly income from my funds. Remember: the focus of my portfolio is to provide me with monthly cash.

    • Jim Yih

      Thanks for sharing your story. I know a lot of people who feel the same way.

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