Historically, the US Equity market has returned about 10% annually to investors from 1926 – 2022. Due to this historical rate of return, many investors expect this level of return year over year. However, stock markets are highly volatile. Although the average is 10% per year, it is extremely rare for the market to be up 10% over any given year.
Since 1927, there have only been 6 years where the stock market returned between 8-12%. Thus, even though you should expect the market to give you a 10% return, you should expect the market over any given year to hardly ever give you a 10% return. It is this bumpy road that creates the risk in investing in equities, which is why you are compensated with the 10% annual average return. The key is to take the long view and not look at quarter-to-quarter or year-to-year returns.
People often panic when their expectations don’t match reality. Investors expect a 10% return every year, which will often not materialize. When the market goes down and does not match this 10% expectation, investors tend to panic. Changing your expectations on the range of outcomes of equities while keeping in mind the long-term average can help investors stick to their plan.
Hill Investment Group is a registered investment adviser. Registration of an Investment Advisor does not imply any level of skill or training. This information is educational and does not intend to make an offer for the sale of any specific securities, investments, or strategies. Investments involve risk, and past performance is not indicative of future performance. Return will be reduced by advisory fees and any other expenses incurred in managing a client’s account. Consult with a qualified financial adviser before implementing any investment strategy.
Hill Investment Group may discuss and display charts, graphs, and formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used alone to make investment decisions.
