Jan. 01--2013 was the best year for the stock market since 1997 and a reminder of the sweet time at the end of the 1990s when 30 percent annual gains seemed easy and regular Americans presumed themselves expert investors.
But while the average stock mutual fund in 401(k)s and individual retirement accounts climbed an unusual 33 percent, the year was devoid of the giddy responses from that earlier era. A decade ago, investors were stunned by the tech wreck of 2000 and its 49 percent market plunge.
Today, investors may be enjoying the sight of their savings healing as the Standard & Poor's 500 climbed 30 percent in 2013. But they remain leery.
As 2014 dawns, many wonder how stocks can remain so strong while unemployment is so high. And they are still digesting the effect of the financial crisis, with its cruel reality of a market that suddenly turned villainous and devastated 57 percent of the average person's savings.
For New Year's Day, here are some lessons from last year to help guide investors going forward:
Even the sickest stock markets eventually heal. During the darkest days of early 2009, few investors would have imagined recovering from the market's traumas. But the broad stock market of large and small stocks, known as the Wilshire 5000, has climbed about 187 percent since then and delivered about $15.4 trillion in wealth -- $5.4 trillion of it in 2013. As a result, the stock market is now about 24 percent ahead of where it was before it turned cruel in 2007.
The gains have been so great in 2013, analysts are debating whether stocks have become too pricey and, therefore, vulnerable. Yet there has been no surge comparable to the end of the 1990s, when stocks climbed more than 20 percent a year for five years straight.
Morningstar analyst Matthew Coffina says the stock market is selling at a 2 percent premium to its fair value now, different from the late 1990s "when stock valuations had become completely disconnected from reality."
Back then, he said, it made sense to cut back on stocks and store cash. But now, with the global economy improving and stocks not sharply overpriced, he said trying to trade in and out of the stock market would probably be folly.
Often after a year as strong as 2013, another up year is coming. But that's wrong about one-third of the time.
Keep an eye on profits. Stocks will turn down if companies start disappointing, and the latest report from FactSet suggests some vulnerability. With fourth-quarter earnings reporting season a couple of weeks away, FactSet says the highest percentage of large companies on record has been warning that analysts are expecting more from them than they are likely to deliver.
Bonds aren't always safe. Risk-averse people will be surprised when they start opening brokerage statements from 2013 and see losses in bonds for the first time since 1999. Furthermore, losses are likely to persist in 2014, since analysts estimate 10-year Treasury yields may hit 4 percent after closing 2013 about 3 percent.
Although people ran to the safety of bonds in the financial crisis, conditions are now just the opposite. A horrible economy and Federal Reserve stimulus are no longer causing interest rates to fall. Rather, the Fed has announced a reduction in stimulus, and the economy is on the mend. The result: Interest rates are climbing.
Whenever interest rates start climbing, bonds or bond mutual funds are hit by losses. This year, 10-year Treasury bond yields jumped to 3 percent from 1.78 percent -- a sharp change that inflicted losses. If you plan to hold a government bond until it matures, you won't notice the effect. But if you plan to take money out of a bond fund, you will feel it.
According to Lipper, the average mutual fund that invests in safe Treasury bonds has lost about 7 percent for the year.
Beware of doomsayers. After the terrifying losses in the stock market during the financial crisis, people were easy targets for doomsayers predicting the collapse of the U.S. and eurozone. It didn't help that U.S. politicians ignited