7,304 Days
As we celebrate our 20th anniversary with clients, I have been looking back at the last two decades and grow more impressed at the resiliency of the American economy. The past 7,304 days has given us two recessions the latter mightier than the first and two wars with the latter still looming. We saw irrational exuberance with the dot-com bust and “Home or Bust” took on a different meaning with the crippling housing crisis. Sprinkle in your basic corporate greed, 9/11, horrific hurricanes, Greece, Brexit, missiles over Japan and POTUS Tweets and there was plenty of disruption to keep the wary away from Wall Street. Yet despite all of these reasons to put one’s head in the sand, the S&P 500 earned an annualized return of 7.20% from the beginning of 1998 and the end of 2017.
Unfortunately, investors have not done as well. The average investor earned an unimpressive 2.3% annualized return for a similar period. Greed certainly plays a role. An overly conservative allocation of investments due to fear could also be the culprit. High investment fees should be mentioned as well. But in my opinion, the leading cause of this dispersion of returns has to be that many investors zig when the market zags. Most of us just can’t seem to stay invested and let time work its magic. This is could be because many of us think we are smarter than the market and we aren’t. We tend to take too much risk only to retreat bruised and battered from the market when we bite off more than we can chew.
Since 1926 American companies have always grown for any 20-year rolling period, however market returns don’t follow in tandem. Market returns arrive in surges. They are unpredictable, never warning us or sending advance notice. During the past 20 years ending December 2017; six of the 10 best days of the market occurred within two weeks of the 10 worst days. Miss those days, try to time the market and you may have missed the entire year or decade of recovery. If you missed those 10 best days your annualized return was reduced to 3.5% from over 7%. So instead of your $10,000 investment being worth $40,000, it grew to only $20,000. Miss the 30 best days and your $10,000 was worth $8,300. That’s right! By just missing the 30 best days of 7,304 days you lost money and earned an annualized return of -.91%!
Domestic companies have certainly been hit with a surge of incentives by means of the recent tax plan reducing corporate tax levels from 35% to 21%. The direct impact of this fiscal policy is being seen in the last two quarters. With 80% of the companies already reported, S&P 500 earnings growth jumped an estimated 24% for the three months ending June. This is after the first quarter which saw earning up over 28% year over year. Even with the current tariff jousting, the strength of the last two quarters tells me that reducing equity risk at this point would be premature. Like all good things once the policy as worked through the system it will be up to the real economy to continue the growth. At some point, volatility will return but investors must stay invested.
Over the years the clients who placed only those assets that they were willing to let the ebb and flow with the markets have succeeded. For the last 20 years, our investment team has searched for value, diversified and managed for tax efficiency while our wealth team has kept our clients on track with all aspects of their financial lives. I hope you will join us for the next 7,304 days.
Chart Source: Bloomberg. Returns are based on S&P 500 Total Return Index, an unmanaged, capitalization-weighted index that measures the performance of 500 large cap domestic stocks representing all major industries. Indices do not include fees or operating expenses and are not available for actual investments. The hypothetical performance calculations shown are for illustrative purposes and are not meant to be representative of actual results while investing over the time period shown. Hypothetical performance results have certain inherent limitations. Unlike an actual performance record, they do not reflect actual trading, liquidity constraints, fees and other costs. Past performance is not indicative of future returns. An individual cannot invest directly not an index. Data as of December 29, 2017
Advisors Capital Management, LLC is an investment advisor registered with the United States Securities and Exchange Commission. Registration does not imply any degree of skill or training. All investing carries risk, including the potential for the loss of principal and past performance is no guarantee of future results. This content is for informational purposes only, can change at any time without notice, and is not investment advice or a recommendation to trade any security. Indices are not available for direct investment. We only provide services in jurisdictions where we are registered. Our disclosure brochure (ADV Part 2A) and customer relationship summary (ADV Part 3) are available at https://adviserinfo.sec.gov and upon request.
