It’s mid-July, which means firms like ours have been busy publishing quarterly recaps and market outlooks for the remainder of the year. You can watch our traditional recap here, delivered for the first time via video.

But I couldn’t help but wonder how it would sound if we focused not on the last 90 days, but rather recapped the last 10 years. After all, we constantly talk about long-term investing, so why not write commentary to match?

So, here it is: Divvi’s market review for the 10 years from July 2013 through June 2023. And, if you’d prefer to watch, scroll down or click here to see the video. Enjoy!

Stocks Went Up, A Lot

The NASDAQ and growth stocks were among the best performers, clocking total returns well over 300% for the decade. The S&P 500 returned a respectable 235%, and even managed to deliver 177% without considering dividends.

Small caps struggled to keep up, but still more than doubled, returning 121%.

International stocks were some of the bigger laggards. Developed international markets “only” returned 69%, while emerging markets investors were likely disappointed with just 34% returns.

Bonds Made a Little Money, Too, But Not After Inflation

The glory days for bond investors may have ended during the last decade, as rates had fallen fairly consistently since the early 1980s. ZIRP, or zero interest rate policy, took a toll on bond returns, as the income component was well below prior decades.

Still, diversified bond investors earned about 16%, using the Bloomberg Aggregate Bond Index as a proxy. Unfortunately, the consumer price index rose by about 30% during the last decade, giving bonds a negative real return of 11%.

60/40: Not So Dead

It seems like we hear calls for the death of the 60/40 portfolio every few years. This portfolio invests 60% in U.S. stocks and the remaining 40% in bonds, and it has become somewhat of a proxy for “balanced” investors. I like to use Vanguard’s Balanced Index Fund to represent this type of portfolio because it’s cheap (0.07% expense ratio) and it has been managed in a consistent style (the allocation 10 years ago was still roughly 60/40) during the whole decade.

How did it perform during the last decade? It more than doubled, returning 118%, with about 2/3 the volatility of the S&P 500.

I can only hope I look this good when I’m dead.

Reasons to be Cautious, Circa 2013

The numbers look great in hindsight. Surely the outlook was much rosier back then compared to all the challenges we face today, right?

My memory is challenged so I asked Google’s AI tool Bard to remind me of some of the biggest reasons to be cautious in the markets in 2013. It offered the following:

• The European debt crisis. Remember the PIIGS acronym, which stood for Portugal, Ireland, Italy, Greece and Spain? This group of countries had way too much debt and some were forecasting their demise to drag the world into another global recession.

• Chinese slowdown. Again, concerns over a ripple effect impacting the rest of the world.

• US fiscal cliff. Gee, sound familiar?

• Rising cost of oil. After falling hard from 2008 peaks, oil prices surged in 2013. The added cost to businesses and consumers had some worried it would influence growth significantly lower.

• Threat of deflation. Ok, so this is different than today, when inflation seems to be the bigger concern. However, there are some who have looked past 2023 and see deflationary pressures in years ahead.

There was no mention of a multi-year global pandemic. Or trade wars with China. Or a Russian invasion in Ukraine. Because accurately predicting the future is pretty close to impossible. The unexpected happens all the time. And it will surely happen over the next decade, too. Roll with it.

Summary

There are always reasons to be concerned. Successful long-term investing, thankfully, does not require brilliance. Discipline and good behavior have been more than enough.

Still, there will be some who claim, “Last decade was unique! Low rates inflated asset prices everywhere! No way that continues!”

I’d agree. The last 10 years were unique, just as the next 10 years are likely to be unique. I’m a firm believer none of us can predict what the world looks like 10 or 20 years from now. But I know I want to be invested in the businesses that shape that future and offer real value to their customers.

Data helps cement this point, at least for me. I looked at 10-year total returns for the S&P 500 going all the way back to 1936. Assuming we look at 10-year returns at the end of each quarter, just how good was the last 10 years? Was it the anomaly?

Nope. It was barely above average, right at the 55th percentile. The chart below shows each of these 10-year total returns. The green bar is the decade that just ended on June 30.

It has generally paid well to be a long-term optimist.

Cheers to the next 10 years.

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