2013 Investment Returns: The Good, the Bad and the Ugly

Arthur Stein Financial, LLC |

There was nothing subtle about investment returns in 2013. Stock returns were great and US bond returns were bad. Interest rates on bank accounts barely exceeded zero. Gold tanked.

Need some perspective? The article below summarizes the returns and offers some explanation for the different results.

The table above summarizes returns for different asset classes, with higher performers on top.

The 32% gain for the S&P 500 – and even greater gains for other stock indexes – surprised many. At the beginning of 2013, average estimates for stock market gains were in the 7 to 8 percent range. So much for forecasts!

While it is never easy to determine exactly why stock prices increase (or decrease), there was positive news in 2013:

  • Third-quarter growth in GDP was an above-average 4.1% (annualized).
  • Consumer confidence increased.
  • The job market strengthened (although payrolls are below the January 2008 peak and unemployment is still high).
  • Household debt fell and savings increased.
  • Household net worth finally exceeded the 2007 level.
  • Inflation and interest rates remained low.
  • Capital spending at U.S. companies increased to the highest level ever.
  • The Euro zone did not collapse.

This is not to say that the economy is in great shape. Or that it will continue to perform well. The point is that there were positive developments in the economy that may have helped boost stock prices.

Another important boost was the stimulus program of the Federal Reserve. The Fed had been buying about $85 billion of bonds per month, keeping interest rates low, bond prices high and stimulating the economy. [The relationship between bond prices and interest rates is discussed here.]

Interest rates began increasing this year in anticipation of the Fed’s reducing the stimulus; that was a major cause of the negative returns in the bond market. The Fed made its official announcement of the reduction last month, so  further interest rate increases and bond market declines may occur this year.

All in all, 2013 illustrated that stock-market investment is a two-edged sword: There are risks in being invested and there are risks in not being invested.

 

Notes:
 
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
 
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
 
Keep in mind that:
  • Past performance is no guarantee of future performance;
  • Investments involve the risk of loss of principal and earnings;
  • ETFs, mutual funds, including money market funds, etc. are not guaranteed in any way by the US Government, the FDIC, a bank or anyone else.
  • “Average annual return” evens out variations in the actual year-to-year returns.
  • ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
  • None of the information provided by Arthur Stein is necessarily relevant to anyone’s particular situation. Situations differ among individuals and you should not assume that these generalizations or information apply to you.
  • Investments mentioned may not be suitable for all investors.
Arthur Stein Financial, LLC is registered with the states of MD, DC and VA. It is not registered with, nor is it required to be registered with, the Securities and Exchange Commission.