Bloomberg published an article near the end of December last year reporting outcomes from its latest monthly economic survey.1 Survey respondents included 38 economists who each offered a forecast for 2023. Like many at the time, the survey results were generally pessimistic about the economy. The survey’s median estimated growth rate for U.S. gross domestic product (GDP) over 2023 was just 0.3%. This included a projected decline of 0.7% in the second quarter and flat growth in the first and
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Insights
The Certain Uncertainty of Short-Run Economic Predictions

High Rates Don’t Put the Brakes on Stocks

Some investors have asked if stocks make sense in a world where short-term US Treasuries are yielding north of 5.5%.1 These investors can take solace in the historical evidence, which suggests that interest rates have not been meaningful predictors of stock returns. In years with above-median interest rates since 1955, during which the average three-month Treasury yield was 6.7%, US stocks returned an average of 12.1%. This is slightly higher than the average return in below-median interest rate years (11.6%),
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The Power of Compounding—in Health and Wealth

“Compounding is one of the most powerful forces in the world. Just ask Albert Einstein, who’s said to have called it the “eighth wonder.” The seemingly small decisions we make every day gain power over time. That’s why it’s important to take the long view and come up with a plan—in both wellness and investing—that creates momentum in the direction of our goals. Don’t squander the power of time when you can recruit it to work in your favor. Most
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Index Concentration: Have Some Indexes Become Too Top Heavy?

Market indexes designed to represent total stock markets or broad subsets of a market are generally known to offer investors high levels of diversification. Many well-known indices, like the S&P 500® Index and Russell 3000® Index, hold hundreds or thousands of companies. Yet, by some measures, many major indexes appear more concentrated today than ever. Figure 1 presents the weight of the top 10 stocks in several commonly followed indexes representing U.S. and non-U.S. stock markets. For the U.S., asset
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Think Twice about Chasing the Biggest Stocks
As companies grow to become some of the largest on the US stock market, their returns can be impressive. But not long after joining the Top 10 largest by market cap, these stocks, on average, have lagged behind the market. From 1927 to 2022, the average annualized return for these stocks over the three years prior to joining the Top 10 was more than 25% higher than the market. Three years after joining the Top 10, these stocks were, on
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You Know More about Investing than You Think You Do

No matter how familiar we are with investing, we’ve all navigated uncertainty, weighed risks and rewards, and made carefully considered tradeoff decisions. Just by being human, we’ve been compelled to tackle the central challenges of life—which also happen to be the central challenges of investing. We believe that having a good investment experience is about more than returns. What matters just as much is how someone feels along their financial journey. And that’s really what the investment business should be
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Over the Top

US stocks outpaced non-US stocks in the first seven months of 2023, adding another data point to a decade-long stretch of US market dominance. While some investors may see this as further reason to question the benefit of global diversification, it’s important to note how much of this year’s US advantage stemmed from a handful of stocks. The top seven contributors to the US market—Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta—have returned a collective 66.3%, accounting for a sizable
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Focus on the Horizon: Tuning Out the Noise with Valuations and Returns

Valuations of publicly traded companies are a frequent topic of conversation among investors and for good reason. Valuation ratios tell us the price of stocks relative to fundamentals like earnings, sales and book value. In other words, valuation ratios are an excellent way to understand the long-term attractiveness of groups of stocks relative to: one another their historical norms. A large body of academic evidence ties valuation levels and long-term expected returns, and intuitively, that the price we pay for
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Beware of Sample Periods

Anyone who’s ever bought a used car knows the importance of avoiding a cherry-picked depiction of history. Low mileage and regular oil changes don’t matter much if the seller fails to mention the car was once submerged in floodwater. Many investors have been drawn to the shiny-object stocks of the S&P 500 index on account of their recent performance—since 2010, the large cap S&P has outperformed US small cap value stocks(1) by an annualized 1.7 percentage points(2). However, this impressive
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Stock Gains Can Add Up after Big Declines

Sudden market downturns can be unsettling. But historically, US equity returns following sharp declines have, on average, been positive. A broad market index tracking data since 1926 in the US shows that stocks have tended to deliver positive returns over one-year, three-year, and five-year periods following steep declines. Cumulative returns show this trend to striking effect, as seen in Exhibit 1. On average, just one year after a market decline of 10%, stocks rebounded 12.5%, and a year after 20%
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