Is 10 Years a Long Time In Investing?

Ten years seems like a long time to measure an investment.  But which ten years you measure can make a tremendous difference.

Since the bottom of the COVID-19 bear market on March 23rd 2020, the S&P 500 is up 95%, a stunningly strong and rapid reversal.  The market is also trading at all time highs.  Recent media reports are, of course, speculating that this is a "bubble" that cannot last.

Even more interesting, the media has suggested that even long-term stock market returns are trending far above "normal" historical levels.  As evidence they point out:

  • 10-year trailing returns for the month ended June 30 were 14% annually
  • Going back to the bear market that ended in 2009, average annual returns on stocks are well over 17% for this 12 year period
  • This compares to a long-term average since 1926 of 10% annually

So this obviously means stocks are about to decline, right?  Well, it depends on the measurement period.

What if we extended our view just a bit, focusing on this century (i.e. 21 years). 

In January 2000 the stock market was still riding high from the late 90's "Dot Com" fad.  Investors experienced incredible returns each year and the party seemed poised to continue.  All that mattered was being in a hot tech stock, whether that company had profits or not.  By March 2000, however, the market launched into a steep decline that was exacerbated by the effects of the September 11 attacks.  Over the first 31 months of the century the market dropped 49%.  The NASDAQ market, where many Dot Com stocks traded, lost a staggering 80%.  This period also gave us the only time the market lost money three years in a row (2000-2002). These were very dark days.

From October 2002 to October 2007 the market did stage a comeback, briefly recapturing the previous highs reached in March 2000.  Sunny days ahead, right?  Unfortunately, the real estate bubble was about to burst and take the stock market down with it.  Over the next 17 months the market would decline 59%, finally reaching bottom in March 2009.  By then, average annual returns in the stock market stood at NEGATIVE 5% ANNUALLY for nearly the entire first decade of the century.  There weren't a lot of enthusiastic investors back then.

Marrying all of this together, what have stock market returns been for the entire 21st century?  As of this writing stocks have averaged about 7% annually, significantly below the historical average of 10%.

This is not to say that stocks are about to go up, or down, or sideways.  These things can't be known with any certainty, therefore we don't pretend to know.  And we certainly do not adjust long-term investment philosophy based merely on recent returns.  Clients of Oxford know we don't waste time making these crystal ball-type predictions.

What we do know that it's important to have a long-term perspective.  Depending on the measurement period, investing has either been a really good or really disappointing endeavor.  It is the nature of the market that these things do eventually even out.  Volatility was, is and always will be an inherent part of successful investing.

What we can do is build portfolios in anticipation of volatility, rather in reaction to it.  That's exactly what we do with Power of 5 Investing.

When we build retiree portfolios at Oxford, we seek a balance between Stability and Growth following the principles outlined in our proprietary Power of 5 Investing system. Our goal is to help clients achieve inflation-beating growth in their wealth, while managing through market downturns, ultimately helping clients leave a legacy to the people and places they love.  Our system has been battle tested in 25+ years of market ups and downs and is ready for whatever the market can throw at it.

If you'd like to learn more, schedule time for a free Get Acquainted meeting today.