Farsighted Expectations: Wealthspire Advisors 2019 Q4 Review

by Michael Moriarty of Wealthspire Advisors, 2/5/20

Unlike the weather, where predicting over the long term has much more error than predicting for tomorrow, we have a better idea of probable outcomes for how markets will perform in the 2020s than how they will do in 2020. The long term forecast? Stocks are unlikely to replicate their annualized double digit run of the 2010s while high-quality bonds will likely return about what they currently yield.

  • The last time a balanced 50% stock/50% bond portfolio performed better than in 2019 was back in 1997
  • Market observers have a mixed track record on short-term (1 year) predictions but much better on a longer term (10+ years)
  • Those longer-term market projections suggest more tepid performance for a balanced portfolio over the next decade than what was enjoyed over the most recent 10 years and especially over the last year
  • Politics can lead to sub-optimal decision making – make portfolio changes, if desired or needed, because of your financial circumstances and where you are versus your financial goals; we would suggest not making changes because of a reaction to who may occupy the White House one year from now

We have many reasons to reflect at the end of 2019 – end of the year, end of the decade, and Bronfman Rothschild’s and Sontag Advisory’s first year as Wealthspire Advisors. It is easier writing an “end of decade” letter than an “end of year” letter because of the obvious follow-up question: “what about next decade (year)?” Unlike the weather, where predicting over the long term has much more error than predicting for tomorrow, we have a better idea of probable outcomes for how markets will perform in the 2020s than how they will do in 2020. That is why we are strategic investors at Wealthspire Advisors. Tactical trading requires you to be right 1) on the way into a trade/portfolio change, 2) on the way out, and 3) for many of our clients, on an after-tax basis. Tall order indeed. Let’s look at some of JP Morgan’s 2019 Outlook published at the end of 2018, which is remarkably consistent with what we saw from many others:

  • “The U.S. economy should slow but not stall in 2019 due to fading fiscal stimulus, higher interest rates and a lack of workers…” [verdict: mostly correct but for the wrong reasons]
  • “Central banks in the U.S. and abroad will tighten monetary policy in 2019 – this should continue to push yields higher. In the latter stages of this cycle, investors may want to adopt a more conservative stance in their fixed income portfolios” [verdict: wrong and wrong]
  • “Higher rates should limit multiple expansion, leaving earnings the main driver of U.S. equity returns…” [verdict: way wrong]

Interestingly, short-term futility on specific calls stand in stark contrast to longer-term guidance for broader portfolios. JP Morgan and others who put out return assumptions, many going back to the early 2000s, have done a much better job setting longer-term expectations for a balanced portfolio than any shorter-term call on a specific event, stock or category. How did they do over their 10+ year horizon? More often than not, long-term assumptions for a 60/40 stock/bond allocations have been within 1% of what ultimately transpired, which for an industry littered with bad short-term predictions is not bad.