Since 1926 the US stock market has rewarded investors with an annualized return of about 10%. But, returns in any given year are far from the historical average... And that is the most important point for investors to come to terms with. In fact, only 6 years had returns near the average.
Remember, this pertains solely to the US market. Despite being the largest stock market globally, it can also be among the most volatile. Global diversification can mitigate the extreme fluctuations, offering investors a more stable experience. Since 1926 there have been 72 years of positive annual returns compared to 26 years of negative returns.
About two-thirds of the down years were followed by up years. The most recent example: a 19% loss in 2022 followed by a 26% gain in 2023.
If the stock market is a casino, it's the only one in the world where your odds of success increase the longer you stay.
The stock market tends to reward investors who can weather annual ups and downs and stay committed to a long-term plan.
Think back to December 2019. The economy was buzzing. Unemployment, interest rates, and inflation were at historically low levels. But then what happened?
A global pandemic hit. By the end of March, people were receiving their first quarterly statements that could have been down anywhere from 10-20% (those were tricky conversations)
Later in the year, we had more information about the virus and their was a renewed sense of hope of how we would 'get back to normal'.
Tech/Pandemic stocks soared … before giving up a lot of gains.
Meme stocks shot way up … and fell back down.
Bitcoin and other cryptocurrencies reached record highs … and then crashed.
Inflation spiked to the highest levels most of us have ever experienced.
And Russia invaded Ukraine, sparking a humanitarian crisis and geopolitical uncertainty.
Through all of that... If you stayed invested over the last 5 years, you've done very well.
The one thing we do know is that more uncertainty lies ahead, which is why it is so important to stick to a plan and tune out the noise. Diversification not only increases your odds at long-term investment success, it also acts as your Kevlar vest against future uncertainties. In my experience, the biggest benefit of diversification for investors is peace of mind.
Moral of the story: Instead of searching for the needle in the haystack, consider owning the entire haystack. Over time, this approach will make investing easier and enable you to benefit from the market's long-term average.
I urge anyone to get a second opinion to ensure they're on the right track. Take advantage of a free professional consultation.
You don't know what you don't know.
Disclaimer:
Past performance is no guarantee of future results. Actual returns may be lower. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Indices are not available for direct investment. Index returns are not representative of actual portfolios and do not reflect costs and fees associated with an actual investment.
Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise noted, any indicated total rates of return reflect the historical annual compounded total returns, including changes in share or unit value and reinvestment of all dividends or other distributions, and do not take into account sales, redemption, distribution, or optional charges or income taxes payable by any security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated