by Scott Ronalds
2017 was a great year. It’s easy to forget this when most of the headlines were focused on the negatives. But there was a lot of progress and victories in global health, poverty, violence, and clean energy. I was passed along a blog that highlighted 99 of the best stories from the year that most people probably missed. It’s worth a read.
It’s also been a good period for investors. All our equity funds posted double-digit gains in 2017. Looking further back, $200,000 invested in our Founders Fund five years ago is now worth nearly $300,000 ($296,730, as of the end of December). It’s grown by 8.2% per year. If the same amount was invested in the Equity Fund, it would be worth $371,100 (13.2% per year). And in the Global Fund, it would be worth $377,870 (13.6% per year).
These are good times and investing in stocks has been fun. We should enjoy it, but we should also temper our expectations for future returns. This isn’t to say that stocks will disappoint over the next five years, but it’s unlikely they’ll produce the same kind of numbers we’ve seen over the last five. We should be thinking more along the lines of 5% per year*, not 10% or more.
Reversion to the mean is a common theme in investing, and stocks have been running ahead of their long-term averages for some time (U.S. stocks in particular). A period of below-average performance therefore shouldn’t come as a surprise. But we don’t know what the short term holds. We could see another year or two or three of double-digit returns. This is why you should be sticking to your strategic asset mix (SAM), rather than trying to time an ideal exit or entry point.
I would love to see the bull keep running, or maybe slow to a swift trot to avoid an unhealthy rise in valuations, but I also know it’s not realistic to expect the markets to rise uninterrupted. We all need to be prepared for a pullback. In my post tomorrow, I’ll explore what a decline could look like and how to assess whether you’re prepared. But today, enjoy the good times and celebrate a great 2017.
*Of course, there are no guarantees as to what stocks will return over the next 5 years. While an annualized return of 5% is a reasonable expectation in our view, returns could be higher, lower, or even negative over the period.
Management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The indicated rates of return are the historical annual total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns.
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