Friday, May 16, 2014

Market Update

Financial markets have been relatively calm so far in 2014: US stocks have gained about 1-2%, total international stocks are up almost 3%, and total return on US bonds has been about 3.5% (I'm using returns from Vanguard's Total Stock Market Index, Total International Stock Index, and Total Bond Market Index funds). There was a mild correction in late January with US stocks down about 5% and international stocks down about 7%, but other than that, stocks have been mostly bouncing around the +/-2% range.

By contrast, 2013 was a big up year for stocks and a down year for bonds. US stocks returned more than 30%, international stocks returned about 15%, and the Total Bond Market index fund lost about 2%. US stocks got an extra boost from small-cap stocks which returned about 38% in 2013. International stocks were dragged down by emerging markets which lost about 5% in 2013, while developed international markets gained about 22%. Bond fund losses, caused by generally rising interest rates, were proportional to interest-rate risk (average maturity/duration of fund), with Vanguard's Inflation-Protected Securities fund losing almost 9% and its Long-Term Government Bond Index fund down about 12.5%.