Lessons of 2024—five truths for investors
By James Parkyn - PWL Capital - Montreal
What the past year revealed about forecasts, timing the market and diversification
The markets are a wonderful teacher. If we pay attention, they provide fascinating lessons about investing.
Our friend and author Larry Swedroe put it nicely. “With great frequency, markets offer remedial courses covering lessons they taught in previous years,” he wrote.
“That’s why one of my favorite sayings is that there’s nothing new in investing, only investment history you don’t know.”
With these wise words in mind, let’s take a look at our five main lessons from 2024. Spoiler: It may not come as a surprise that all of this year’s lessons can be found in our lessons from 2022 and 2023.
Lesson #1: No one can forecast the markets.
Market forecasters from major financial institutions had a terrible record last year. This is nothing new. They also had a poor record in 2023 and the year before that. The lesson here: Don’t pay attention to the annual caravan of forecasts and outlooks for the coming year.
It is true that occasionally a handful of forecasters can get it right—generally thanks to sheer luck. Even a broken clock is correct twice a day. That doesn’t mean those analysts’ predictions will be correct in future. No one can consistently predict the markets. Our advice is to tune out the noise and stay focused on your long-term investing success.
Lesson #2: Valuations don’t help you time the markets.
After two years of outstanding back-to-back gains for equities, some investors have grown nervous about excessive valuations. But such past periods don’t give solid clues about what to expect this year.
As markets hit repeated new highs last year, they continued to soar—hitting higher highs again and again. Research shows that stock markets don’t necessarily underperform after new highs. “There are no crystal balls allowing us to foresee exactly when each shift will occur [from outperformance to underperformance],” Larry Swedroe recently wrote.
That said, it is a good idea to periodically review your holdings and rebalance them to stay aligned with your target allocations. Speak with your advisor about this process. At PWL, we have such conversations regularly with our clients.
Lesson #3: Active management is a loser’s game.
Just 4% of companies were responsible for all stock market wealth creation above risk-free Treasuries from 1926 to 2023, according to an eye-opening study by Arizona State University finance professor Hendrik Bessembinder.
How do you pick the winning stocks of the future? You can’t. “Picking stocks is more like gambling than investing,” says David Booth, co-founder of Dimensional Fund Advisors.
But you don’t need to find the winners if you simply buy the whole market through an index fund. That way, you can be sure to benefit no matter which companies gain. As Vanguard founder Jack C. Bogle puts it: “Don’t look for the needle, buy the haystack.”
Lesson #4: Diversification works.
U.S. stocks outperformed their international and Canadian counterparts in 2024. Does that mean diversification no longer works? Of course not. Some sector or country always does better in any given year. We just can’t know ahead of time which one.
Instead of rolling the dice, we must remember why we diversified our portfolios in the first place—to reduce risk while maintaining long-term expected returns.
Research supports this approach. In a paper titled “International Diversification—Still Not Crazy After All These Years” in The Journal of Portfolio Management, the authors concluded that international diversification “does a pretty great job of protecting investors over the long term…. The long-run case for it remains relevant. Both financial theory and common sense favor international diversification.”
Lesson #5: Sticking to your plan paid off in 2024.
Sticking to your investing plan pays off. Investors who held onto their broadly diversified portfolios through the volatility of recent years were handsomely rewarded in 2024.
The lesson? Invest based on long-term planning—not emotions. Imagine if you had quit the markets early because of the volatility. “Pessimism always sounds smarter than optimism,” Morgan Housel, author of the book The Psychology of Money, wrote, “because optimism sounds like a sales pitch while pessimism sounds like someone trying to help you.”
The markets in their wisdom are continually providing valuable lessons. It’s up to us to notice them and learn from them. This allows us to greet with confidence and discipline whatever may come in 2025.
Read more commentary and insights on personal finance and investing in our past blog posts, eBooks and podcast on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and on our Capital Topics website.