Alan Bergin, Fund Evaluation Group

The U.S. equity market enjoyed an incredibly strong 2019 with the S&P 500 rising over 31% during the year. This was the second 30%+ return this decade (2013 being the other) and the ninth since 1970. For reference, there have been ten negative years for the S&P 500 during that same time span. Investors are taught to expect a long-term rate-of-return in equity markets of somewhere between 8% and 10%, but it is rare to experience an 8% to 10% return in any given year. Markets tend to rise for several consecutive years (a bull market) and then fall during a shorter, but often more dramatic, time period (a bear market).

The current bull market began in 2009 and has seen the S&P 500 rise at an average of 14.7% per year. Adding in the bear market of 2008 and that average return drops to 9.1% per year.  Institutions such as the Community Foundation have long time horizons and can build investment portfolios that anticipate earning long-term equity market averages. Portfolios are diversified to reduce losses during bear markets, but the tradeoff is often earning less than the overall market in very strong years. However, minimizing market losses is an important key to successful investing.

Alan Bergin is the Senior Vice President of Fund Evaluation Group in Dallas, TX, the Foundation’s consulting firm. Financial Forecast is a quarterly installment produced by FEG and the Community Foundation.