Predictably Unpredictable

By Michael Foster, CFA, CFP®

Investing is full of assumptions. Many, for instance, look to the long-term performance of markets and assume that’s the level of return they should expect year-in and year-out as well. While I don’t disagree with their logic, this hasn’t been the historical case for investors.

The S&P 500 Index is often used as the barometer for the US Market. From 1926 to 2021, it rewarded investors to the tune of about 10% a year. Not bad! However, the way it got to that 10% wasn’t easy. The market doesn’t have a nice, clean, upwardly sloping history. You have times ranging from extremely negative to extremely positive with everything in between. Over this period, only 7 of the 96 yearly returns came within 2 percentage points of the long-term average.  

The ability to stick out the ride through time is what lead to that 10% and investor success. I imagine many people in the thick of the Great Depression or Global Financial Crisis thought that positive returns may never return, if the market would even exist at all! On the opposite end, I’m sure there are several investors who let hubris dictate a few bad investing decisions during and after the 90s. You can even look as recently as 2021 and 2022 to see that markets can swing wildly from year to year.  

When investing for the long-term, it’s important to know how much risk you can handle and if you can stick through both the good and bad times. Focus on what you can control (asset allocation, diversification, costs, etc.) and how your investments are helping you achieve your long-term goals.

Source: Dimensional Fund Advisors. Full chart can be viewed here: the-bumpy-road-to-the-markets-long-term-average-us-1.pdf.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data are historical and are no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.

Nothing in this material should be construed as investment advice offered by Dolan Capital Advisors, Inc. This market commentary is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction, or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction, or investment strategy. You should speak with your own financial professional before making any investment decisions.

Past performance is not indicative of future results. Dolan Capital Advisors, Inc. does not guarantee any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal.

Certain statements contained herein are statements of future expectations and other forward-looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance, or events to differ materially from those expressed or implied in such statements.

Ben Dolan and Michael Foster are investment advisor representatives of Dolan Capital Advisors a North Carolina state-registered investment adviser. Investment advice offered through Dolan Capital Advisors, Inc.