20 Second Advisor: Are negative years normal?
This past quarter has been a tough time to be in an investor. In the first quarter of 2022, all major asset classes had negative returns. See here for a recap of Q1 2022 returns. However, during the last 13 years (2009-2021), US stock returns have been pretty good – the S&P 500 had positive returns 12 out of those 13 years. That’s a pretty good time to be an investor if you ask me! But is that normal? What’s the historical distribution of stock returns?
The graph below shows the distribution of US market returns since 1926. A few things to point out are:
- 25% of the years had negative returns while the other 75% of the years had positive returns.
- The market gained an annualized average of 10.2% during this period. Yet nearly 2/3 of yearly observations were at least 10 percentage points above or below the average (ie returns lower than .2% or higher than 20.2%)
- Another noteworthy trend: More than 2/3 of the down years were followed by up years. The most recent example: a 5% loss in 2018 followed by a 30.4% gain in 2019.
1.Return in 1970 was 0.002%.
Past performance is no guarantee of future results. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Indices are not available for direct
investment. Their performance does not reflect the expenses associated with the management of an actual portfolio.
In US dollars. CRSP data provided by the Center for Research in Security Prices, University of Chicago. The CRSP 1–10 Index measures the performance of the total US stock market, which it defines as the aggregate capitalization of all securities listed on the NYSE, AMEX, and NASDAQ exchanges.
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