April 7, 2024
Hopefully you enjoyed the U.S. stock market returns of the past 15 years, because that type of performance may be history.
According to a March report by the hedge fund group Bridgewater Associates, out of any 15-year period to be invested in equities dating back to 1970, the one we just completed was the best.
Over the years, domestic stocks generally have been on a relentless tear. Any dips were bought and quickly faded into memory. Returns were more than double long-term averages and wealth was built.
But can stocks keep up this performance (or anything close to it) for the next 15 years?
It’s a great question, and you probably won’t like the answer.
As Bridgewater also pointed out, the exceptional performance of U.S. stocks over the past 15 years makes it harder for them to keep outperforming.
It’s like what happens when everyone expects a sports team to win. As anyone who has ever tried their hand at sports betting knows, when one team is favored by a lot, you don’t profit much just by betting on them to win. You need to bet on them to win by more than expected.
Similarly, for U.S. equities, the bar is higher to keep generating outsized returns. To quote Monty Python, “And now for something completely different.”
Investors currently focused on U.S. equities will need to employ more portfolio diversification over the next 15 years to maintain and grow their assets.