2 Amazing Stock Market Facts

The stock market is sometimes described as a yo-yo on an up escalator: it goes up and down a lot but eventually reaches the next level. History bears that out. Check out these amazing facts about the stock market:

Fact 1: Timing the market does not work

• The S&P 500 returned an average of 7.2% over the 20-year period from 1998 to 2017 (5,036 trading days);
• A hypothetical investment of $10,000 in the S&P 500 would have grown to $40,135 during that time span;
• If an investor tried to “time the market” and sell her stocks right before she thought the stock market would decline and, as a result, missed the 20 days with the biggest gains during that period, the average annual return would decline to 1.15%;
• So, a hypothetical investment of $10,000 in the S&P 500 while employing a market timing strategy that missed just the 20 biggest days, would have grown to just $12,570 during that 20-year span - $27,565 less than simply staying the course.

Fact 2: Diversification is key

The stock market declined about 50% in 2008-09. If your portfolio – all of your investments across all your accounts – was split 50/50 between stocks and bonds, your portfolio would have lost about 29% in value but recovered all of it in a year.

A portfolio 100% in stocks would have taken 3 years to recover.

Lesson: How your portfolio is balanced among various types of investments matters and should meet your specific, individual circumstances.

2018 in review

After experiencing an extraordinary 2017 that saw the stock market return over 19% with the least volatility in stock market history, 2018 jolted us back to the reality that the stock market doesn’t move straight up. 2018 saw the worst stock market performance since 2008, declining 6.24%.

Despite some pronounced up and downs, in September the S&P 500 was up over 9% and was chugging along toward another wonderful year. Since then, as you undoubtedly know, the market has bounced around like a crop duster in a hurricane. Since that high in September the market dipped into negative territory in late October and November, only to rise back up over 5% again. Then, after dipping down to -12%, it increased 5% in one single day, only to end the year down 6.24%. Whoa, Nellie!

The market looks to the future

What will 2019 bring? By any measurement, the economy is quite strong. Unemployment rates are extremely low and corporate earnings are quite good but the stock market looks to the future, not the current. Investors evaluate what price they are willing to pay for a share of a company’s future earnings and that picture is a bit more difficult to see. That uncertainty of the future is what is driving the volatility of the market since mid-September.

So, what to do? Stay the course. History shows a long-term view in investing is the wise choice. Create a plan; execute the plan; think long-term; don’t worry about the daily or even monthly gyrations.

2019 savings limits

To maximize saving for your future self, here are the new IRS limits for 2019:

• 401(k)s: $19,000;
• 403(b)s and 457(b)s: $19,000 each;
  • Note: UK faculty and staff can contribute that maximum amount to both accounts, a great way to double your saving;
• Those 50 and over can contribute an additional $6,000 to each account;
• Individual Retirement Accounts (IRAs): $6,000;
• Those 50 and over can contribute an additional $1,000 to their IRA;
• SIMPLE IRAs: $13,000 plus an additional $3,000 for those 50 and over;
• SEP IRAs: 25% of your net earnings from self-employment, up to $56,000.

Steve Byars