2016 Investment Review: Top Three Surprises

Posted: Updated:
Elaine Bedel established Bedel Financial in 1989 in Indianapolis. Elaine Bedel established Bedel Financial in 1989 in Indianapolis.

What a year 2016 turned out to be for investors! U.S. stocks ended the year better than anyone predicted, but other categories had mixed results. If you weren't paying attention, you may be wondering what happened to your portfolio.

The U.S. stock market represented by the S&P 500 and the Dow Jones Industrial Index started 2016 by going down over 10 percent in the first six weeks, but both ended the year up. Thanks to the strong rally experienced during the last seven weeks of the year (post presidential election), the S&P 500 finished up almost 12 percent and the DOW even stronger with a yearly return over 13 percent. In fact, investors saw the DOW approach the 20,000 mark -- but ended the year just shy.

The sudden moves of the U.S. stock market captured all the attention in 2016. Meanwhile, it was the performance of other investment categories that may have created either disappointment or elation for investors. Here are our top three surprises for 2016:

Bonds Returns Get Cut in Half

Bonds had a nice run during the first half of 2016 with the bond index (Barclays Aggregate Bond Index) posting a return of nearly 5 percent by early July.  From that point on, bonds started to slowly fall as investors worried about future rate increases by the Federal Reserve. The selloff in bonds intensified after the election. The index lost nearly 3 percent in the final three months of the year to finish up slightly more than 2.6 percent for the year. Literally, the July 2016 bond return by year-end was cut in half!

The unfortunate impact for many investors was seeing the negative returns in the final three months from bonds eat away at the positive returns they had gained during the same time period from the stock market. However, the opposite was true during the first six weeks of 2016. While the stocks were losing 10 percent, bonds had gained a positive 2 percent. In both instances, diversification provided some heartburn relief!

Small Cap Stocks Explode

Small cap stocks, measured by the Russell 2000 Index ended the year up over 21 percent beating most U.S. stock indices. Here’s the surprise: 20 percent of the total year's return came between November 3rd and December 9th! If you missed those five weeks, you basically missed it all!

If you are a well diversified investor you may be lamenting over your bond returns, but ecstatic regarding your small cap stock returns.  However, a little perspective always helps. Small cap stocks were one of the worst performers in 2015, returning a negative 4.3 percent, while bonds were slightly positive.

International Stocks Whimper Out

Pull up a one-year chart of almost any diversified international stock index and you will see what looks like a really bad EKG chart!  International stocks could find no sustainable footing throughout the year.

The widely watched international stock index (MSCI ACWI – Ex U.S.) finished the year up 4.5 percent, but gave up 1.25 percent in returns in the final three months of the year. This was opposed to U.S. stocks finishing the final three months sharply positive. This represents another year of internationals underperforming U.S. stocks by a significant margin. Investors who are not already weary of international stocks are probably being pushed to the brink after 2016!

Here's something to remember: During years in the past, international stocks have experienced a strong outperformance compared to U.S. stocks. From 2003 to 2007, the emerging international stock index (MSCI EM) returned a total of over 482 percent, while the non-emerging international stock index (MSCI EAFE) returned over 267 percent. This is in contrast to U.S. large cap stock index (S&P 500), which returned a total of 182 percent during this same period.

Question to ponder: Will international stocks begin to outperform U.S. stocks in the coming years? If you believe in "reversion to the mean," international stock outperformance would be a logical assumption.


So as we look back upon 2016, we learned that investment markets can surprise us and sometimes in very short order.  Investors who hold a mixture of investment strategies in their portfolio will always have some winners and some losers -- that's the point of diversification. However, in the long run, that generally beats trying to pick which investment will outperform at any given moment.

Contributions were made to this article by Ryan Collier, Director of Investment Management at Bedel Financial Consulting, Inc.

Elaine E. Bedel, CFP, is CEO and president of Bedel Financial Consulting Inc., a wealth management firm located in Indianapolis. She is a featured guest each Wednesday on the WTHR (NBC, Indianapolis) Channel 13 News at Noon, "Your Money" segment. Elaine's book, "Advice You Never Asked For... But wished you had," is available on Amazon.com. For more information, visit www.BedelFinancial.com or email Elaine at ebedel@bedelfinancial.com.

  • Perspectives

    • Investing Lessons from Mount Elbert

      With little mountain-climbing experience under any of our belts, a few friends and I decided to take on Mount Elbert, Colorado’s tallest mountain. While regular climbers may not consider this “Gentle Giant” a tall task, it was for us inexperienced climbers.  Is investing your “tall task”? If so, you can learn a lot from our experiences. And you won’t have to climb a mountain to do it!



  • Most Popular Stories

    • Purdue University ranks #7 for Best Value in a college education in the U.S., according to the Wall Street Journal

      Two Indiana Schools Break Top 50 List of Best Colleges

      The Wall Street Journal and the Times Higher Education magazine have released their annual list of the top 801 colleges and universities in the country. Two Hoosier universities are included in the top 50.

    • School District Raises Questions About ILEARN

      Like all schools in Indiana, we were disheartened at the ILEARN results for school year 2018. We would like to raise several questions concerning this test as it relates to college and career readiness for our students. The annual Indiana Statewide Assessment (this year’s ILEARN) has been developed to evaluate college and career readiness at all levels tested. We are very troubled by our lack of understanding of what indicators in the test evaluate...

    • Sports betting is now legal in Indiana

      Protecting Data Integrity as Sports Betting Grows in Indiana

      Casinos across the state are opening sports betting parlors this week, legally allowing gamblers in Indiana to place bets on professional and some collegiate sports. Some opponents of the law are concerned the integrity of sports is at risk. Others are worried about the integrity of the data used by odds makers in the now-legal betting houses. “There's a mechanism in place that can stop that from happening, or curtail it from happening in the future,” explains...

    • Purdue to Open Chick-Fil-A Amid Protests

      Citing overwhelming demand for Chick-fil-A’s food and services, Purdue University has announced it will allow the restaurant to open on campus. The university has been at the center of a debate over the Georgia-based food chain. 

    • Buttigieg to Lead Task Force on Automation

      South Bend Mayor Pete Buttigieg will Friday launch a task force aimed at preparing for the effects of automation at the U.S. Conference of Mayors Winter Meeting. The mayor's office says “Automation and the Impacts on America’s Cities” will include mayors from throughout the country.