Since 1926, the US stock market has rewarded investors with an annualized return of about 10%. But returns in any given year may be sky-high, extremely poor, or somewhere in between.
Annual returns came within two percentage points of the market’s long-term average in just six of the past 98 years.
Yearly returns have ranged as high as up 54% and as low as down 43%.
Since 1926, annual returns have been positive 72 times and negative 26 times.
For investors, this data highlights the importance of looking beyond average returns and being aware of the range of potential outcomes.
Despite the year-to-year market fluctuations, investors can potentially increase their chances of having a positive outcome by maintaining a long-term focus. The image below shows the historical frequency of positive returns over rolling periods of one, five, and 10 years in the US market. The data shows that, while positive performance is never assured, investors’ odds improve over longer time horizons.
While some investors might find it easy to stay the course in years with above average returns, periods of disappointing results may test an investor’s faith in equity markets. Understanding the range of potential outcomes can help you stick with a plan and ride out the inevitable ups and downs. What can help investors endure the ups and downs? While there is no magic solution, understanding how markets work and trusting market prices are good starting points. An asset allocation that aligns with personal risk tolerances and investment goals is also valuable. By carefully considering these and other concerns, investors can be more equipped to maintain their focus on their long-term goals in various market conditions.
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