2018 S&P 500 Return: Worst Year Since The Financial Crisis

The S&P 500 returned a dismal -6.24% in 2018, the worst year since 2009. 2018 performance was bad. If you include dividends, the S&P 500 was only down -4.75%. But still, that's a terrible return when compared to the 10-year bond yield, which provided a guarantee 2.7% – 3.2% at any point in the year.

In other words, the S&P 500 underperformed the risk-free rate of return by 7-10%. You could have invested in a 10-year bond yield at the beginning of 2018, kicked back, earned a guaranteed return and experienced zero stress.

Take a look at the below chart which highlights the 20-year total return of the Vanguard Long-Term Bond Index Fund (VBLTX) versus the S&P 500 ETF (SPY). As you can see from the chart, VBLTX finally started to outperform the S&P 500 after its collapse in 4Q2018.

Long Term Bonds versus Stock Market Performance - 2018 performance

The next time you look down upon bonds, don't. Bonds are an integral part of an investor's proper asset allocation. We've been in a bond bull market since the 1980s as technology, knowledge, and efficiency has improved over the decades. Yes, there's not much lower bond yields can go, but that doesn't mean bond yields can't stay low for a long time.

S&P 500 2018 Performance

Below is a chart of the S&P 500 return for 2018 compared to its rolling average (black line) and AGG (green line), the aggregate bond market ETF.

S&P 500 Returns For 2018 versus Bond Index AGG

What's interesting to note is that almost every single Wall Street analyst is bullish about the S&P 500 for 2019, despite a drastic earnings slowdown from 20% – 25% in 2018 to just 6%-7% in 2018.

According to the chart I've assembled below, Wall Street is looking for anywhere from a 12% – 34% increase, which seems too bullish, and frankly a little absurd. Just remember that Wall Street strategists don't have real money at stake, only their reputations.

2018 performance was bad. Look at these target prices for 2019.

2019 S&P 500 Price Targets And Earnings Forecast Chart By Wall Street Strategists

After a 4Q2018 collapse, valuations have now reset and expectations are lower. It's likely a good idea for everyone to continue maxing out their pre-tax retirement savings accounts like their 401(k) while also building your after-tax investment accounts for passive income if you want to retire early.

You cannot touch your pre-tax retirement accounts before age 59.5% without paying a 10% penalty. The 2018 performance was bad. You don't want to experience another bad performance like that one post-pandemic. The housing market should stay strong. But the stock market is very expensive in 2021+.

Historical Forward P/E Ratio Of The S&P 500

Find A Bull Market In Real Estate

Although a bull market might be ending in stocks, real estate can continue going forward. When the bull market ended in 2000, real estate took off.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms.

Take a look at my two favorite real estate crowdfunding platforms.

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio. 

Recommendation To Build Wealth

Sign up for Empower, the web’s #1 free wealth management tool to get a better handle on your finances. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Empower since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Personal Capital Retirement Planning Calculation For Estate Tax Planning

Related: Signs The Bull Market Is coming To An End

About the Author: 

Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world.

During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $300,000 a year in passive income. He spends time playing tennis, hanging out with family, and writing online to help others achieve financial freedom.

FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.