Average doesn’t happen very often

A big part of our job as a financial advocate for our clients is keeping them focused on the forest as opposed to the trees.  The last two months, we have highlighted some interesting charts put out by Charles Schwab’s Center for Financial Research.  The first post details the costs of waiting to invest.  The second post discusses riding out declines.

This month, we’ll take a look the third and final chart, specifically average market returns and how infrequently they occur.  As the table below shows, only five times in the last 90 years has the U.S. stock market finished the year with a return between 8% and 12%, which is plus or minus 2% of its long-term average of 10.02%.  So only 5.5% of the time, stocks have returned close to their long-term average.

Another takeaway from this is how heavily weighted the returns are to the positive (right) side of the table.  Only seven times in the last 90 years has the market finished the year down 12% or more.  That’s less than 8% of the time.  Compare that to 47 years the market has finished with a 12% or greater gain.  In fact, the market has finished the year with a return of up 10% or greater 52 times over the last 90 years (we’re rounding up the 9.99% return of 1993).  That’s nearly 60% of the time.

When you broaden the scope even further, markets have finished the year positive 73% of the time over the last 90 years.  Maybe this will add some perspective for investors, both young and old, new and seasoned.

As always, past performance is not indicative of future returns.  Before investing in stocks, you should consult your financial advisor to find out if stocks are right for your particular financial situation.

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Since 1995, Pittenger & Anderson has guided individuals and families going through money-in-motion events. We are a fee-only Registered Investment Advisor and a full-time fiduciary providing investment management, financial planning, and complimentary services to 700+ clients in over 30 U.S. states.

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