The fourth quarter of 2019 and the 2019 year were robust. All of the investment classes and groups below had double digit returns for the year. The 4th quarter exception was real estate (DFREX) down for the quarter, but up 28.10% for the year. The three-year returns are healthy and include the robust 2019 as well as the losses for 2018. Large US (DFUSX) propelled the returns for all three periods led by technology FAANG stocks, Facebook, Amazon, Apple, NetFlix and Google. Microsoft can be added to the FAANG stocks with stellar returns.
What’s ahead for the market – The market is starting 2020 after a banner year in 2019. But as our chart above shows, 2019 can also be viewed as a catch-up year. We start the year and decade with low interest rates and low unemployment. Equities are pricy with a lot of the increase due to multiple expansion
Multiple expansion explained - For example, at the end of 2018, you would have paid $15 for a stock with a future $1 of annual earnings. This is a more usual ratio. At the end of 2019, you are paying $19 for a future $1 of earnings. An investment principal is regression to the mean which in this case means that over time the earnings multiple will regress to its normal range.
TD Ameritrade and Schwab have merged – The merger is expected to take place over the next 18 to 24 months. We do not expect significant changes due to this combination, and we anticipate continued good levels of service for you and for our practice. We used Schwab for client portfolios many years ago.