One critical lesson to remember before investing in the next decade

Brian Sozzi
·Executive Editor

The past decade has been pretty amazing for a large majority of investors in stocks. But don’t expect the next decade to offer up similar red-hot returns, most Wall Street pros say.

“The biggest lesson I would like to leave you with is don’t expect the next 10 years to look like the previous 10 years, especially not next year,” Edwards Jones investment strategist Nela Richardson said on Yahoo Finance’s “The First Trade.” “We will not see the trifecta of good news that we saw in 2019 — low interest rates, high double-digit returns and an improving economy that’s marching along after a 2018 sell-off in December. Those factors have ebbed a little bit.”

Richardson said investors should expect the unexpected in stocks in 2020, as well as the return of volatility to markets after a general slumber since 2017. “Get ready for a real market in 2020 and over the next decade — that means lower returns and higher volatility,” Richardson said.

Investors would be wise to strongly consider Richardson’s view of a so-so next decade and plan their portfolios accordingly.

The last decade has been characterized by an extremely favorable backdrop for interest rates, massive post Great Recession job creation and the profit benefits to companies from increased globalization. An argument could be made that all three of those factors driving the 10-year-plus bull market will unwind in some form moving forward. So using basic common sense — and considering current valuations — stocks look poised for more measured returns looking out to 2030.

That’s excluding the headline risk to equities to kick off the next decade with a presidential election.

But it’s worth reminiscing on the fruitful times before the calendar turns to 2020, no? And oh what a 2019 and decade it has been for investors.

The Dow Jones Industrial Average will likely end 2019 with an impressive 30% plus gain, powered by surges in key components Apple (+85%) and Procter & Gamble (+38%). Over at the Nasdaq Composite, skyrocketing stock prices for chip plays such as Advance Micro Devices (+140%) and Nvidia (+70%) has sent the index up close to 25% this year. As for the S&P 500, it’s locked and loaded on ending 2019 up about 30%.

Amid what many on the Street view as a year-end market melt-up, the forward price-to-earnings multiple on the S&P 500 is now at 18.4 times (slightly above historical norms) vs. 13.6 times at the bottom for stocks on Christmas Eve of 2018.

The market’s gains for the decade have been nothing short of stellar:

  • Apple: +956%

  • Microsoft: +460%

  • Nasdaq Composite: +320%

  • S&P 500: +200%

  • Dow Jones Industrial Average: +183%

Despite the prospect for less hearty gains in stocks, Richardson stresses it still makes sense to stay active in the market.

“Stay invested,” she said.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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