As we said goodbye to 2009, there was a lot to celebrate — we closed out a year of spectacular gains on world stock markets. But while 2009 was a great year, it also marked the end of one of the worst decades for stock performance in history. As of December 31, 2009, the S&P500 was down 24.1 per cent from where it started in 2000. So bad does the decade look in retrospect that it’s being called the “lost decade.”
So where do we go from here?
I’d like to tell you that world stock indices are set for more double-digit gains in the years ahead but that wouldn’t be true. There are far too many economic problems on the road ahead, with high government debt levels, leveraged consumers in developed nations and inflation on the horizon. All that adds up to a volatile environment as far as stocks go.
Which is why active management and a focused, long-term outlook will be more important than ever in the decade ahead of us. While passive strategies paid their way during times of unprecedented stock market growth, the future belongs to investors who can stay the course and actively seek value in their investments. And there are other ways you can maximize your savings — taking advantage of tax incentives (RRSPs and IPPs for example) will give you a boost going forward. You should also be focused on paying off debt, as interest rates begin to creep up from their lows.
Benjamin Graham’s student Warren Buffett has said that it only takes two things to make money – having a sound plan and sticking to it… and that of those two, it’s the sticking to it part that most investors struggle with.
Markets like we’ve seen of late create understandable stress and can lead to short-term decisions – this New York Times article from May talks about the cost to investors of acting impulsively.
At the risk of repeating a timeworn cliché, in our experience the only way to invest successfully over time is to maintain discipline and a long-term focus – to have the right plan and then stick to it.
