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Does it seem like it's been a hard year for investors so far?

The Dow rallied and closed up 2.8% today after the Fed announced a half-point rate hike. But, it's still down 6.2% for the year. During times like this, it can be helpful to look at how annual returns have varied historically and what the average market return has been.

Annual stock market returns are unpredictable, but “up” years have occurred much more frequently than “down” years in the US. That may be reassuring to investors, especially if they find market downturns unsettling.

The graph below shows the distribution of the average annual returns of the CRSP 1–10 Index. from 1926–2021.

Note the following observations from the data above:

• The US stock market posted positive returns in 75% of the calendar years from 1926 through 2021.

• The market gained an annualized average of 10.2% during this period. Yet nearly two-thirds of yearly observations were at least 10 percentage points above or below the average.

• Another noteworthy trend: More than two-thirds of the down years were followed by up years. The most recent example: a 5.0% loss in 2018, followed by a 30.4% gain in 2019.

The Bottom Line

The stock market tends to reward investors who can weather annual ups and downs and stay committed to a long-term plan.

*Study provided by Dimensional Fund Advisors.

Many investors see market pullbacks as an opportunity. If you would like to discuss the current market situation with a fee-only fiduciary advisor, click the link below to set up a complimentary consult.

Disclaimer: Past performance is not a guarantee of future results. Actual returns may be lower. Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful. Any indices referenced for comparison are unmanaged and cannot be invested into directly. Nothing in this blog should be considered financial, legal, or tax advice or recommendations. Your questions are unique to you and your financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.

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