Big 2024 Prediction Post!

Are you ready? Something will skyrocket more than anyone expected, something else will do shockingly poorly and a bunch of other stuff will be in between those two. 

Predictions are pretty useless. I think you can list out current headwinds for markets as well as items that argue favorably for markets, then remember that the stock market has an up year 72% of the time (82% of presidential election years going back to 1926 via Bespoke Investment Group) and accept that in your portfolio, if you go any narrower than a broad index fund, some things will do pretty well and some things will do poorly, Guessing which is which is pretty hard to do. 

If all you use is a broad index fund then it will either be a good year or not so good, but assuming the proper asset allocation, who cares? The important thing is there are far more good years than bad years, you just need to be there for the good years which probably also means being there for the occasional bad years.

Speaking of good years and bad years, the last two are a good microcosm due to the divergent performance of various ways to own the US stock market.

The comparison is simple market cap weighting vs a dividend strategy versus value. All three are valid but as we say here all the time, nothing can always be the best. You can either diversify strategies/exposures or live with the reality that when you choose one, there will be years that you lag noticeably and very occasionally you will lag by a mile. Both are valid. The last two years are a great example of that last point. The divergence of MCW from 2022 to 2023 is shocking.

Even if you were ride or die with value, the clear laggard, over the last 12 years you still got a compound annual growth of 10.78%. That's enough to get it done assuming an adequate savings rate, appropriate asset allocation and no panicking. 

Truly accepting that whatever way you choose to invest cannot always be the best and that occasionally the stock market will go down a lot is liberating. That mindset eliminates the fear. A valid strategy will be the best some years but not all years, probably not most years but as we saw above, a serious laggard still had a very strong CAGR over a decent period of time. When the stock market goes down a lot, like 2022, it eventually stops going down. Then it starts to work its way higher, eventually making a new high. The only variable is how long that all takes. I've been saying to clients and in my blogging since the Financial Crisis and will keep saying it and when you actually understand that's how it works, it makes market participation much easier. 

Whatever you do, just make sure you have an adequate savings rate if that still applies, you maintain the appropriate asset allocation and that you don't panic (repeated for emphasis).

The information, analysis and opinions expressed herein reflect our judgment and opinions as of the date of writing and are subject to change at any time without notice. They are not intended to constitute legal, tax, securities or investment advice or a recommended course of action in any given situation.