Debunking the Myth of "Average" Stock Returns
The road is a lot bumpier than it looks like in a spreadsheet
If you’re going to invest in the stock market, you need to accept an inescapable truth:
There is no such thing as an “Average year” in the stock market.
You’ve heard financial advisors and writers say that the historical long-term returns in the stock market have been around 10% per year. But there may never be a single year for the rest of your life where returns are exactly 10%.
In today’s post, we look at how bumpy the ride can be for long-term investors.
On average, stocks have returned about 10% per year
In the past century, the S&P has only returned between 8%-12% only six times
The market has had years as great as +54% and as terrible as losing 43%
Even years with positive can have massive intra-year drops
Read to the end to learn why long-term investors are rewarded for stomaching this volatility
There’s no such thing as an average year in the stock market
The following chart from the research team at Dimensional Fund Advisors shows the annual return of the S&P 500 between 1926-2019