As trade and tariff worries blow hot and cold and interest rates rise, U.S. stocks reached record highs due to improving fundamentals – strong job gains, solid economic growth and S&P 500 earnings that were up more than 20% over the past year. Is it too late to invest? Are the gains behind us? We don’t think so – these supportive trends should continue even if volatility picks up, making now a good time to invest.
Although the expansion has been slow and sluggish, the $20.4 trillion U.S. economy is 40% larger today than at the start of the current expansion. Nearly 18 million jobs have been added, increasing the workforce by about 14%. And S&P 500 profits have increased by about 150%. Those gains have supported the 280% return, including dividends, in the S&P 500 over the same time frame, an average return of 15.6% per year.
The bigger future ahead is a foundation of long-term investing – the economy, earnings and the stock market all have historically grown over time, as the chart shows. That’s true here as well as globally. But growth over time isn’t smooth or steady, which is why investors also pay attention to cycles around these long-term trends. Cycles occur regularly, but predicting them is similar to predicting the weather – conditions suggesting rain or snow in the forecast rarely mean bad weather arrives on schedule. Markets are even more difficult to forecast, and cycles in the rest of the world usually differ from those in the U.S., which is why we think taking a long-term perspective and staying invested in a broadly diversified portfolio are important.
This is the longest bull market without a 20% decline and the second-longest economic expansion since World War II. Despite worries that the lengthy U.S. expansion and bull market could end soon, most indicators show clear weather ahead. Some positive signs include the following:
We think stocks are well-positioned to continue rising globally, but ongoing concerns about trade and tariffs, rising interest rates, higher inflation and political risks may cloud the short-term outlook.
Some people regret decisions they’ve made, while others may regret the opportunities they’ve missed. If you’ve been worried about the outlook, you may be missing opportunities, even if not every investment performs as expected. Over time, both types of regret can indicate you’re invested in a well-diversified portfolio that’s designed for the long term and hasn’t taken too much risk.
For example, you may regret not investing in some high-flying stocks – until they plunge. You could regret owning investments that underperformed the S&P 500 – until they perform better when the cycle changes.
If you participate in the growing future by owning a wide variety of equity investments and reduce your portfolio’s volatility with an appropriate amount in fixed income and cash, you won’t regret having a strategy designed to help you toward your long-term goals.
Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. The value of investments fluctuates and investors can lose some or all of their principal. Dividends can be increased, decreased or eliminated at any point without notice. Diversification does not guarantee a profit or protect against loss in declining markets. Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events. The S&P 500 is unmanaged and is not available for direct investment. Past performance does not guarantee future results.
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