High Long-Term Returns

Today’s weekly market commentary takes a step back from current financial headlines and instead focuses on a bigger picture theme for investors – high long-term returns require patience. It is natural during periods of volatility for investors to become anxious and consider moving out of the market. But today’s piece looks at the average annual return of the stock market broken out into calendar year performance, proving the point that sticking with stocks during unstable times, though requiring patience, has paid off in the long run.

The chart plots the annual total return of the S&P 500 Index over the past 10 years. Returns are broken out into four categories. The first are “painful” returns which range from -12% to > -20%. The next are “challenging” returns which range from 0% to -12%. The next are “good” returns which range from 0% to 12%. And then finally there are “exceptional” returns which range from 12% to > 20%.

Now as can be seen from the data, there have been more calendar years that have returned > 20% than any other category. But importantly, approximately one out of every four years, the S&P 500 Index had negative returns.

The takeaway from the piece, and the theme to keep front of mind during volatility is, “when investors hear that stocks have averaged an annual return of 10.49% since 1926, they may mistakenly believe that stocks will return 10% most years. In reality, stocks have only returned between 8 and 12% in six calendar years since 1926. Historically, high returns have come with volatility – but staying the course has been worthwhile for long-term investors.” – CCWP091_0126