Never Expect Average

Hint: The stock market tends to be up a lot more than 8-10% each year...

As an investor, it’s important to set realistic expectations.

I’ve hit on the type of returns that one might expect investing in different asset classes.

For stocks, the historical average return has been 8-10% per year.

Does that mean you should expect a 100% stock portfolio to be up 8 - 10% every single year? Absolutely not.

You can actually expect stocks to be up much more than that on a yearly basis.

These charts summarize the annual returns for the S&P 500 going back 150 years:

Source: Visual Capitalist

Source: Visual Capitalist

The S&P 500 has ended the year with gains of over 10% in 66 instances throughout its history, or 43.6% of the time. Pretty damn good odds of having a strong return if you ask me.

For those that are screaming at me that the S&P 500 isn’t 150 years old, first, go f*** yourself — and second, Ryan Detrick provides similar analysis since 1950:

Only 4 times out of the past 74 yrs did stocks finish the yr between 8-10%.

What does this tell us? Maybe more upside is normal.

It’s still true that if you own stocks for the long-term (10+ years), your annualized return will likely be around 8-10%. That’s because the great years are offset by those where you question your existence, and then sprinkle in years where returns are just ‘ehh’.

Hopefully you’re starting to see just how much wealth can be created in the stock market over time. The stock market rises more often than it falls, and when it does go up, it frequently delivers gains of 10% or more.

Few assets offer the combination of potentially high returns, cost-effectiveness, and liquidity that stocks do. With the ability to buy and sell easily, the stock market remains one of the best ways for you to grow your wealth over time.

**Fun fact: when you see financial institutions making their annual S&P 500 forecasts, they will typically take the prior year end value and add 8-10% and call it a year, genius! 😊**

P.S. If you are looking for a new financial newsletter (besides mine of course…) I’d check out Sam Ro over at TKer.

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

All investing includes risks, including fluctuating prices and loss of principal.