2020 Q1 Investment Update

Economists called for a recession in 2019; the market didn’t answer. We came off a record-setting year where we saw the most significant market gains since 2013. In a year where many called for a recession (not us), we would say that is pretty good. Now those same individuals say it will happen in 2020 or 2021. Well, even a broken clock is right twice a day.

Looking ahead, we can’t predict what 2020 will bring in terms of economies, politics, and markets – nobody can. We know that in presidential election years since 1936, the S&P 500 has rallied 9% on average and was positive 86% of the time1. With monetary policy worldwide largely committed to ensuring market liquidity and supporting economic growth, the market outlook for 2020 appears considerably brighter than it did at the midpoint of 2019.

As we meet with our clients this year and discuss 2019 performance, we will also set the stage for 2020 and make updates to their long-term financial goals. We will get back to the basics: What can we control? Understanding long-term financial goals, cash flow, tax minimization strategies, and a well-diversified investment strategy. Nick Murray, a well-respected author, and financial professional, said it best, “Long-term investment success comes from continuously acting on a plan. Investment failure proceeds from continually reacting to current events in the economy and the markets. The only benchmark we should care about is the one that indicates whether we are on track to accomplish our financial goals2.”

In an uncertain market environment, with a wide dispersion of returns both in and among sectors and industries, in-depth fundamental research will be particularly critical for identifying potential opportunities and risks. Because of this, we, as an investment committee, decided to dedicate an entire week every quarter towards our client investments, the economy, and possible investment changes for the benefit of our clients. During this week, we are inviting our investment partners to discuss our client holdings, trends they are seeing, and best practices. We are excited to report back.

Even though we think the fundamentals of the economy are strong, we believe we are in a slow-growth economy. That doesn’t mean gains cannot be made from here, but the underlying holdings, sector exposure, and alpha generators (excess returns above benchmark) will be that much more important going forward. The FED raised short-term interest rates in 2018 as part of its policy normalization. The FED targeted additional increases in 2019 but ended up cutting the federal funds rate three times to 1.50% – 1.75% as it reacted to increased downside risks from trade policy uncertainty and slower global growth. We think the “lower for longer” interest rate outlook remains as valid as ever3. Because of this, we went through a case study that helped prove why investing today may not look like your portfolio looked 20 years ago.

The chart below helps illustrate the hypothetical exercise we went through: Taking the S&P 500, cash, and a 10-Year Treasury bond and investing $1,000,000 in each in 1999. This is two parts, the investment values, and dividends (or interest). In 1999, the S&P 500 average dividend was paying 1.14%, cash was paying 5%, and the 10-Year Treasury was paying 6.66% annually. Taking risk at this point was a preference given income you could receive by investing in cash or Treasury Bonds (5% – 6.6%). In 2009 assuming you were able invest directly into the S&P, the investment value on your S&P 500 investment dropped significantly due to the Dot.com bubble bursting and the “Great Recession” in 2008-2009. Income was down considerably on cash and Treasury bonds, but you still had your initial investment amount of $1,000,000. The only income source that increased over the period was the S&P 500, going from $11,300 to $15,300 (even with taking a hit to its portfolio value).

Fast forward to 2019, your hypothetical S&P 500 investment is $2.2 million, and annual income would have grown to $39,600. Cash is paying 1.5% or $15,000 annually on your same $1 million investment. And with rates so low, the 10-Year Treasury bond is paying $18,000 (1.80%) on the same $1 million you invested 20 years ago (1999). This chart illustrates that taking risk with an appropriate piece of your portfolio makes sense if you have a long enough time horizon. Most importantly, we should invest in assets that have the potential GROW your income over time to keep pace with inflation.

This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions. Actual investor results will vary.4

We will continue to monitor the markets and global economies for the benefit of our client portfolios but remain focused on our long-term investment goals. We expect the market to remain volatile as we enter an election year and see our incumbent President Trump be challenged by the Democratic nominee. It’s worth reminding investors that election results, have made virtually no difference to long-term investment returns. What has mattered is staying invested3.

If you would like to discuss your long-term financial plan in greater detail, please contact our office to schedule time with one of our financial advisors.


Jerrod Ferguson & the Vance Wealth Investment Committee


  1. Raymond James Investment Strategy Quarterly – Volume 12, Issue 1, January 2020
  2. NMI – Nick Murray Interactive – Volume 20, Issue 1, January 2020
  3. Capital Group – Long-term Perspective on markets and economies – Outlook, January 2020
  4. Yahoo finance & Y charts


Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Keep in mind that individuals cannot invest directly in any index. The S&P is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. Vance Wealth, Inc. (“Vance Wealth”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Vance Wealth and its representatives are properly licensed or exempt from licensure.