2011 stock market recap: U.S. outshines the world

US stocks had a wild ride to nowhere in 2011. The Wilshire 5000 index, the broadest measure of the US stock market, was up 0.6 percent for the year, including dividends. Narrower indexes, which exclude dividends, show the S&P 500 index losing 0.003 percent, while the Dow Jones Industrial Average of 30 stocks gained 5.5 percent.

Though the market ended the year almost exactly where it started, it took some stomach-churning detours to get there. Using the Wilshire 5000 total return, stocks were up 9.1 percent as of April 29, and down 13.0 percent by Oct. 3. Rebalancing worked very well for those who practiced this contrarian strategy, which forces you to sell assets that are doing well and buy those that are performing badly. Morningstar data shows 2011 was a better year for large companies, as large cap stocks gained an average of 2.6 percent, with mid and small cap stocks losing 0.6 percent and 2.6 percent respectively. Three industries had double digit gains (consumer defensive, healthcare, and utilities), while two had double digit losses (financial services and basic materials).

International stocks fared worse

International stocks, measured in US dollars, lost 14.4 percent in 2011, as measured by a broad index fund, the Vanguard FTSE All-World Ex US ETF (VEU). Losses varied by region and, in spite of the Euro crisis, European stocks fared the best losing 11.9 percent. Pacific-rim stocks, comprised mostly of Japan and Australia, lost 14.4 percent, while emerging markets fared the worst, declining 18.8 percent. All returns are using the broad Vanguard index funds.

Another great year for bonds

Despite the experts' predictions of trouble for bonds, it turned out to be another banner year. The Barclays Aggregate Bond index rose 7.2 percent, and Treasury Inflation Protected Securities soared. The iShares TIP bond fund surged 13.3 percent as real yields turned negative. And though the Federal Reserve has committed to keep rates low though mid-2013, it remains unclear as to the influence the Fed can have on anything other than short-term rates.

Gold does well

Gold may not have soared as many predicted, but it did gain 11.5 percent for the year, closing at $1,566 an ounce. Gold peaked at $1,895 an ounce on September 6, and the pullback puts it near bear territory, generally defined as a 20 percent decline from the high.