The “Average”

By Michael Foster, CFA, CFP®

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It’s currently May 14^th in Charlotte, NC as I write this. It’s 68 degrees outside. The high today is 78, and the low is 64 according to the Apple Weather app on my phone. This is pretty close to historical averages (79.6 high/57.4 low) according to Weather Underground. Nothing remarkable here. However, the same site shows me that the all-time highs and lows on May 14^th in Charlotte are 95 degrees and 41 degrees – both very different from the slightly overcast spring day I’m experiencing right now!

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As you might expect, we go over portfolio and market returns as part of our standard review process with clients. Investments are a key part of building a successful financial plan, and we do want to make sure that the portfolio helps our clients stay on track in reaching their goals. It’s nice to look back over several years with our longer-term relationships and say things are on track and the portfolio has returned ABC or XYZ percent on average per year based on the specific account. However, we are quick to point out that the way solid, compounding returns are achieved through time is anything but smooth.

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Just to name a few, clients invested over the last decade have experienced the sharp decline at the end of 2018, the dive and quick rebound of spring 2020, highly positive years in late 2020 and 2021, a terrible year for stocks and bonds generally in 2022, choppy rises in the subsequent couple years, and the quickly down and up again volatility of April 2025. It can be easy to look back now and discount how you may have felt along the way, but the ride is bumpy to say the least! Throw in noisy headlines telling you the world as you know it is ending or everyone is getting rich but you, and the ride becomes even bumpier.

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One of my favorite slides to share with clients and prospects comes from Dimensional Fund Advisors. It shows how the returns by year of the S&P 500 compare to its long-term average of roughly 10% per year. What they’ve found is that annual returns have come within 2% of that long-term average only 6 times in the last 99 years. 6 times! The way investors have received that nice return over time has been anything but “average” day-over-day or year-over-year.

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All of this is to say that market averages, like the weather, can provide us information on what we might expect, but don’t tell us everything about life in the moment. There will be other 78-degree days on May 14^th here in the future. There will also be 41-degree, 95-degree, and everything-in-between days along the way. We just can’t let the uncomfortable sweater or sweaty days deter us from the ride.