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How did the stock market perform in 2023?

How did the stock market perform in 2023?

January 03, 2024

Let’s clarify the term “stock market.”  Most investors have heard of the Dow Jones Industrial Average and/or the S&P 500 Index, but those only track a subset of the US stock market, and do not consider international and emerging stock markets.

Since most financial planners advise to diversify globally, a better measure of stock market performance is to track the total US, international, and emerging stock markets.

The chart below summarizes the performance of these 3 markets over 1 year and 10 years: 

Total Stock Market

2023 Rate of Return

10-year average annual rate of return

U.S.

26%

11%

International Developed

15%

4%

Emerging Markets

9%

3%

Although US companies have been outperforming international companies in recent years, there have been long stretches of time where the opposite occurred. For example, from 1970-1988, international developed companies outperformed the US by an average annual return of 6.6%; from 2000-2007, that number was 3.9%.  During that same 2000-2007 period, Emerging Markets outperformed the US by an average annual return of 13.6%.

I generally recommend that the “growth” portion of a portfolio, which is intended to be invested for 10+ years, be allocated to 60% US, 30% International Developed, and 10% Emerging Markets.  Using the data from the table above, a good benchmark for 2023 and for the last 10 years is as follows:

2023: (60%*26%)+(30%*15%)+(10%*9%) for a blended benchmark of 21%

10 year avg annual return: (60%*11%)+(30%*4%)+(10%*3%) for a blended benchmark of 8%

To summarize:

  • The global stock markets continue to reward long-term investors
  • Diversify globally to put the odds in your favor while reducing overall risk
  • Don’t try to “time” the market. You never know when the good years will happen.
  • Focus on what you can control: invest in the stock markets for long-term growth, while keeping money you need for short-term needs in interest-bearing investments