The title of this article is not a typo. I plan to discuss my investment outlook for the decade ahead, not for the coming year. A pet peeve of mine is the obsession with short-term predictions among the talking heads on financial news networks and social media influencers:
Where will the market end in 2026?
What sectors will be the best performers in the new year?
If you had to invest $1 million in one area of the market for 2026, what would it be?
Where will the market trade tomorrow?
These are all actual topics that financial “gurus” discuss this time of year. They speak eloquently and with authority, but the truth is that accurately making short-term stock market predictions is impossible. Consumers of this type of financial narishkeit will set themselves up for financial challenges ahead.
A better exercise is to discuss the themes that will still be relevant ten years from now. Focus on investment trends that generally persist over decades. Adhering to this long-term mindset will give investors better perspective and help them handle their money more sensibly. Here are a few “predictions” to consider:
Stocks will meaningfully outpace inflation: Stocks have historically outpaced inflation by a wide margin over long periods of time, delivering roughly 7% “real” (i.e. inflation-adjusted) annual returns since 1926. This is true even though high inflation often coincides with weaker stock performance. Over shorter time horizons, inflation and stock returns can be negatively correlated, but over decades, equities have consistently preserved and grown purchasing power.
If you are a long-term investor, make sure your portfolio has an adequate allocation to stocks in order to meaningfully outpace inflation and maintain your buying power over the next decade.
The market will likely be higher in 2036 vs 2026: Historically, the U.S. stock market has gone up in about 94% of all rolling 10‑year periods since 1926. That means that over nearly a century of data, a 10‑year investor has only experienced negative returns about 6% of the time. If you are looking to grow your wealth over the next decade, investing in the stock market is a smart decision.
Bonds will provide stability: Investment‑grade bonds are important in a long‑term portfolio because they provide stability, income, and diversification, reducing volatility and cushioning stock market downturns.
Investment‑grade bonds have a lower standard deviation than stocks, smaller drawdowns, and low correlation with stocks in recessions. Therefore, if stocks plummet, high-quality bonds should rise or remain relatively stable. This was the case during the Dot-Com bubble implosion, the Great Financial Crisis, and the COVID-19 epidemic, to name just a few.
Stability in one’s portfolio is also psychologically beneficial because it helps investors stay committed to their strategy even when the market plummets. Additionally, it serves as a financial safety net. If a family is short on cash or facing financial hardship, they can liquidate bonds in their portfolio, which fluctuate less than stocks and are more likely to hold their value in an emergency.
If you get nervous by large market swings (i.e. everybody reading this) or may experience a financial emergency over the next decade (always a possibility), then bonds will be a sensible holding within your portfolio.
Cash will trail most other investments: Over the past 50 years, cash earned 4.3% annually, lagging growth in assets like stocks, bonds, or real estate. Due to inflation, folks would have lost buying power. That is why keeping one’s funds exclusively in a checking/savings account, CDs, or money market funds is a bad decision.
Keep in mind that cash is a tool. It is not a sensible investment strategy. Hold on to as much cash as you need to pay your bills and in case of a financial emergency. Anything beyond that amount will cost you dearly over the next decade.
International markets will zig while U.S. markets zag: U.S. and international stocks have traded leadership in long, multi‑year cycles. Since 1970, neither has dominated permanently, with each decade experiencing stretches where one meaningfully outperformed the other. Recently, the U.S. has been in an unusually long 14-year run of outperformance, well above the historical 8-year average cycle length. This year, international markets have vastly outperformed the U.S. market.
Over the next decade, we know that both markets won’t move exactly in sync. Therefore, maintaining a philosophy of portfolio geographic diversification over the next decade is sensible.
There will be unpleasant news: When bad things happen, the media love to drum it up. An awful event attracts many more clicks than positive news. More eyeballs mean more ad revenue. It’s a simple business model. The financial media is no different than traditional news outlets. The talking heads will repeat the same bad inflation numbers or stock market declines ad nauseam until there is a fresh piece of negative news they can share with their audience.
Inflation, war, a global pandemic, accounting fraud, and political turmoil are all things that may take place in the coming decade that are unpredictable. It’s not the investor’s job to foresee these big events. Investors should remember that despite what happens in the world, the markets and humankind have always prevailed. Obsessing over every scary headline will not change that reality. Stay optimistic and, in time, life and your portfolio will get better. Investors should position their portfolio to withstand whatever awaits us and keep their emotions at bay to achieve long-term financial success.
Investment fads will come and go: Investment fads, or a widely shared enthusiasm for an “investment” that is short-lived and without basis, will undoubtedly appear during the next decade. Recently, we have experienced fads in the form of dozens of cryptocurrencies, SPACs, NFTs, meme stocks, and more. If you don’t recall these most recent fads, it’s because their excitement fizzles out rapidly after they implode.
A good rule of thumb is if something is new, exciting, and discussed with enthusiasm at your shul kiddush by novice investors, then you probably should avoid it. As I say often, successful investing is boring. If you are looking for excitement, it should take place outside of your finances.
Proper Perspective: There is a tendency for folks to get caught up in the minutiae: The day-to-day headlines, one irrelevant person’s opinion, short-term market moves, and more. Instead, focus on the big picture, which includes the following investment themes:
- Stocks go up over the long run.
- Investing in stocks is a reliable method of growing wealth.
- Bonds and cash are important elements of every investor’s finances.
- No one can predict the markets, that’s why diversification, across geographies and asset classes, is essential.
- Bad things happen in the world and the markets. This is not an anomaly. Don’t panic. We will get through it.
- Ignore the noise, which includes the latest fads, short-term predictions, and what your friends at the shul kiddush club are recommending.
Don’t let any events in the coming year or decade distract you from these big picture themes. Focusing your attention on these themes will allow you to position your portfolio and financial life successfully. It will also make the next decade a financially fruitful one.
Wishing all Jewish Press readers a happy & lucrative year and decade ahead!