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A Lookback at Investing Through the Decades

The decade has drawn to a close and the stock market sprinted through the tape to finish an extraordinary 10-year stretch. Building from the ashes of the financial crisis and ending with a strong rally to record highs, the 2010s were characterized by a slow-but-steady economy, record low rates and above-average stock market returns. As we turn the page to the ’20s, here is some perspective on the past decade and three takeaways for investors:

1. Absence of a downturn drove the market’s upside

The TSX returned 95% over the last ten years while the S&P 500 returned an even-stronger 256%. The S&P 500’s 400% returns of the ’50s, ’80s and ’90s highlight the remarkable growth of those periods, but the 2010s were still notable as this was the only decade on record that did not experience a U.S. recession (Canada’s economy contracted briefly in 2015), and just the second decade not to experience a bear market in the S&P 500 (the ’90s was the other). 2019’s 23% gain for the TSX made it the best year of the decade, while the S&P 500’s 31% total return was the second-best year of a decade and the second-strongest finale to a decade since the 1930s, trailing only 1989’s 32% gain. With a strong finish in 2019, we think current conditions are starting us off on the right foot for the 2020s.

MKT-12062-C-chart1

Source: Bloomberg, Morningstar. S&P/TSX Composite and S&P 500 index (50’s average beginning in 1953) total return. Price return for the TSX prior to 1990. 10-year Government of Canada interest rate, U.S. Treasury rate used for 1950s given limited Canadian data. The S&P 500 & TSX indexes are unmanaged and cannot be invested in directly. Past performance is not a guarantee of future results.

2. A decade’s DNA shapes performance

Broad secular and cyclical trends in the economy and financial markets have shaped investment performance over the decades. This is consistent with our view that fundamental conditions (economic growth, corporate profits and interest rates) should garner the heaviest weight in the market outlook. We maintain a fairly positive outlook for 2020, supported by still-favourable fundamentals. We don’t anticipate a recession in 2020, but the coming decade will probably see one. Looking at the ’20s, while impossible to predict with specific precision, we think secular trends such as automation, A.I. and demographic shifts will combine with cyclical factors such as low interest rates, evolving inflation trends, moderate economic growth, more prominent central bank intervention and swings in global financial markets to shape investment performance. For perspective, prior decades were influenced by a variety of conditions:

  • ’50s: Post-war industrialization, strong economic growth. Mid-decade recession driven by tightened monetary policy.
  • ’60s: Lengthy economic expansion led by rising incomes, household consumption and government spending. Passive monetary policy kept interest rates low, ultimately stoking inflation.
  • ’70s: Slower economic growth with multiple recessions, including one sparked by the oil crisis. Low growth and rising prices brought higher interest rates and "stagflation."
  • ’80s: Recession started the decade, then peacetime expansion was fueled by stabilizing inflation, rising consumer incomes, stimulative fiscal policies and increased private investment.
  • ’90s: An early mild recession gave way to extended economic growth driven by the internet/PC boom that lifted productivity and investment (and ultimately fueled the tech bubble).
  • ’00s: Following the pop of the tech bubble, 9/11 and a short recession, economic growth was driven by rising oil prices that spurred the energy industry, accommodative central bank policy, low rates and rising (debt-fueled) household spending that culminated in the U.S. housing bubble. The decade concluded with the financial crisis and Great Recession.
  • ’10s: A post-financial crisis expansion (with a brief oil-induced technical recession in Canada and no recession in U.S.) was supported by historically-low interest rates, surging domestic consumer debt and housing investment, unprecedented central bank stimulus and modest-but-persistent economic growth. Unemployment dropped dramatically while inflation remained subdued.

3. A longer-term approach has been successful

Investment goals and market cycles don’t simply align to 10-year windows, but this does demonstrate the importance and value of a longer-term perspective.

  • Markets have performed well amid a wide range of conditions. The exceptionally strong returns of the ’50s, ’80s and ’90s occurred amid changing political environments, high and low interest rates, shifting global conditions and varying economic influences.
  • A wider view can help navigate challenging periods. Each decade endured one or more recessions, bubbles popping and/or notable shifts in economic and political complexion. Most of them also included sizable bear market declines.
  • Timing matters, but it’s the timeline of your financial goals that’s most important for your situation, not the calendar. Since 1940, when looked at over rolling 10-year periods, the stock market1 delivered a positive return over 97% of the time. In addition, a well-diversified portfolio includes bonds, which have historically risen during stock market declines, helping smooth the performance of portfolios over time. 

Important Information:

Sources: 1. Stock market measured by the total return of the S&P 500 index.

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