812-853-0878  |  800-355-9624

January 1, 2020

Dear Client:

Returns for the major stock indices for 2019, and the current bond and money market yields are as follows:

IndexYear-End 2019
Dow Jones Industrial Average    25.34%
S&P 500    31.49%
Fixed Income Yields1 year5 year10 year30 year
US Treasuries1.57%1.69%1.92%2.39%
Fidelity Government Cash Reserves Money Market Fund 1.32%

Happy New Year!  As we begin the new decade, please again recognize how your commitment to long-term investment principles has rewarded you this year.  2019 was the best year to be an equity investor since 2013.  Not only was the year strong in market performance, there was minimal volatility as 10 of the 12 months posted positive results and each sector in the S&P 500 increased for the year.  We had three market declines over five percent but did not record a single decline of ten percent in any of the major market indexes.  Also, the decade ending in 2019 proved to be a rewarding one for investors, averaging an annualized 13% rate of return, though only the 4th best decade since 1930 trailing the 1950s, 1980s, and 1990s.   No matter how you slice it, this past year and decade again proved to be excellent periods for long-term investors.

As we reflect on a great year and decade in the markets, we still remember the negative year in 2018 and the relatively quick 20% decline in the 4th quarter of 2018.  We wrote one year ago, at the low of the markets, how we remained optimistic for the year ahead.  Though we know short-term market calls are difficult, we know we have to continue to make risk decisions based on rational, thoughtful, and principled processes.  We study the research of those we believe are consistently bringing forth the best ideas on your securities, the economy and investing markets in general.  Please note we use the term “ideas,” as there are always competing ideas among the well-known economists we follow as well as within our office.  After all, ideas reflect future prognostications, an enormously humbling endeavor.  This said, we remain positive for 2020 on the equity markets though we believe it is likely we will have at least one ten percent decline. 
We believe the 2020 market declines will again prove to be solid buying opportunities.

As we have written several times, we still cannot stray from our heavy equity bias, in large part due to the continued low interest rate options available in the bond market.  Our growth and dividend equity models currently yield 2.6% and 3.3% respectively (compared to a paltry 1.9% 10-year treasury).  These models are full of companies that have increased their dividends for many years consecutively and often at many times the rate of inflation.  For example, Emerson Electric has now raised its dividend consecutively for 63 years.  Yes, your investment income has increased in each of those 63 years. 

We build our stock portfolios with dividend growth as a core principle.  If the dividends in our models continue to rise consistent with history, then many of these dividends will be roughly twice their current levels in 7 to 10 years; names not limited to Intel, McDonalds, and Procter & Gamble.  What will this mean for stock prices if your dividend income continues to double over these time periods?  We believe markets will continue to reward these quality types of companies with higher prices over time.  Either McDonalds’ dividend will rise from 2.5% to 5% or the stock will move up at the same rate.  If this happens, then your stock has doubled as well as your dividend income. 

We fully understand that we are at market all-time highs, and while we concede volatility is more likely in 2020, we are not recommending significant changes to asset allocations.  We are carefully monitoring company earnings and valuations and as long as these numbers continue to remain within acceptable ranges relative to history, then we will continue to stay the course. 

Heading into the new decade, we know we will experience unforeseen market-moving events.  The health of the current economic environment, along with exciting innovation, continues to keep us optimistic.  More specifically: the trade war hype subsiding, the still acceptable equity valuations, continued low energy prices from the fracking revolution, the excitement in 5G technology, and the continued low borrowing costs are just a handful of reasons we remain positive for 2020.

As we finish our 25th year as a company, we would like to again thank you for your continued confidence in LYNCH & Associates.  We are mindful that our market thoughts expressed in our letters are general and may not address your specific situation appropriately.  As always, we welcome you to schedule an appointment to review your financial situation.


Ryan T. Lynch, CFP® ChFC®


Form ADV Part II of the LYNCH & Associates Uniform Application for Investment Advisor Registration and the LYNCH & Associates Code of Ethics are available to all clients at any time.  If you would like to receive a copy, please contact Jennifer Farless at (812) 853-0878 or [email protected].

Office:  10644 Newburgh Road, Newburgh, IN 47630