The US stock market’s performance during the first quarter has been “interesting” once again.
Of course, no one is happy to see their stocks (and overall portfolio) go down in value, but there are some valuable lessons to glean from what’s been happening this year that are worth pointing out, because it highlights an absolutely critical principle every investor must understand. It is this…
When you’re well diversified, you’re never 100% happy. Let me explain.
Take a look at the chart below. I know, it looks like I dropped a bunch of my kids’ crayons into a blender, but bear with me. This chart shows the annual performance of different “classes” of investments over time, such as US stocks, international stocks, US bonds, real estate (shown as “REITs”), and others.
Source: https://awealthofcommonsense.com/2025/01/updating-my-favorite-performance-chart-for-2024/
The far right column shows that overall the US stock market was the top performing asset class over the last 10 years; however, this did NOT happen year after year. Look at how well emerging market stocks did in 2017, or how US stock prices and real estate got massacred in 2022 compared to just keeping everything in cash, or the subsequent surge in the US stock market from 2023 to 2024.
None of these investments were the darling of the market year after year. I wish I could consistently predict which investment class will perform the best at all times, but I can’t, and don’t be duped by anyone who claims differently.
Instead, spreading your wealth across a variety of investments that tend to behave differently from the other can increase your overall retirement success.
Looking back at the chart, most years you can see that the “swings” in bond prices were less wild than the swings in stock prices. This is called volatility. Lower volatility is a relief when the stock market has a bad year, but it can be frustrating when stocks have a great year and bonds earn close to nothing.
Getting back to 2025, we can see similarities playing out so far this year. US stocks have taken a hit, down about 4%. In the meantime, bonds are up for the year, and international stocks are doing extremely well, up over 10% year to date.
You could chase the returns by buying investments that appear to be doing well, and selling what doesn’t, but that’s almost always a losing formula, unless you’re extremely lucky, which no one is over a long enough period of time (If you want to test this, try flipping a coin to land “heads” five times in a row, then try for “heads” 100 times in a row).
The best option wise investors are left with is a well diversified portfolio that is never 100% perfect, but stands the greatest chance of helping you reach your financial goals.
That’s our investment approach at Hale Financial, and we think that’s enough to be happy about.