by John Hartley
Down 37, up 26.5 – the S&P 500 Index for 2008 and 2009 keenly illustrates the financial markets like a rollercoaster at the State Fair. Though Q4 ‘08 and Q1 ‘09 appeared the end for the financial markets, the crisis was averted and the markets roared back. But there’s still work to do, and what does 2010 hold in store? If January and February are any indicator, the rebound will be more of the slow and steady variety. Though the recession ended last summer, the economy remains fragile, tight credit and tenuous job growth. However, as we stand at the one-year anniversary of the equity market lows, the outlook is indeed much, much brighter than a year ago.
Thankfully, the market rebound of 2009 conformed to the behavior of historical bear markets (declines of greater than 20%), recovering a major portion of the decline in the first year. The average second-year return of the S&P 500 over the past nine bear markets is 12%. With the questions facing this recovery though, 12% appears optimistic for 2010. But there are many positives – corporate cost control, increased productivity, innovation, returning sentiment, which all point to a positive year for equities.
Still, our focus is not on one year. It’s not five or ten. Philanthropic investing has an extremely long-term perspective, longer than personal investing, longer than retirement investing. And this long-term view confirms the need for and benefits of equity in the portfolio. Our recent market experience has only reinforced the Foundation’s investment strategy – a diverse, moderate asset allocation is essential for philanthropic investing. Through this moderate allocation we will preserve historical value, maintain grant effectiveness and ultimately build the endowments for future good.