2013 Year in Review

2013 was a great year for equities, but too many institutions and nonprofit organizations carry the risk of owning stocks without earning the returns that they should. The evidence shows that on average, institutions and nonprofit organizations underperform their benchmarks over multi-year periods.

Many institutions get out after an extended bear market and get back in when we are deep into a bull market. The psychological damage brought on by the 2007–March 2009 financial crisis caused many investors to miss the greatest rally since the 1930s that followed. Now we are coming off another strong year for stocks, and short-term bond yields remain low. This can tempt institutions to abandon their investment strategy policy (IPS) and chase positive equity returns. Revisiting your IPS at least once a year is crucial for investment committees to stay disciplined.

One reason stocks performed so well in 2013 was due to the Federal Reserve making a concerted effort to revive the economy. The Fed’s actions, which started in 2008, have caused increases in prices for stocks, bonds, and hard assets over the past few years. The Fed eventually will have to remove the excess liquidity. If it does this too soon another recession could follow. If it does this too late, we could experience runaway inflation. This uncertainty is reason enough to be cautious with investment decisions.

Corporate profit margins have been relatively high over the past few years. While this is generally positive, corporate profits usually return to their long-term average relative to GDP. Part of the reason margins have been high is because unemployment has also been high over the past few years. This has given corporations the edge over employees in wage negotiations, but the December jobs report showed signs of improving labor markets.

Buckingham’s future outlook is not pessimistic or optimistic. What we know is that 2014 will be as unpredictable as any other year. The chart below shows how the majority of annual equity returns (S&P500) are positive, but still subject to volatility and large declines within each year. Buckingham reaffirms that the best strategy is to stay disciplined and stick to the investment plan.


The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2014, The BAM ALLIANCE


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Buckingham Strategic Wealth was founded in 1994 to provide a disciplined, academically based investment experience tailored to address each client’s distinct willingness, ability and need to accept market risk. Offering an advisor relationship built on personal trust and company-wide integrity, we serve as a Registered Investment Advisor offering fee-based investment management to individuals, businesses, trusts, partnerships, not-for-profit organizations and retirement plans.

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