I think it’s important for investors to understand the historical behavior of the investments they hold in their portfolios. This understanding helps investors maintain realistic expectations of their investments going forward (both good and bad), invest more appropriately, and remain disciplined through up and down years. “Remaining disciplined” means not chasing returns in good years while not fleeing your strategy in bad years.

Since 1928, the price of the S&P 500 Index (a U.S. stock index) has increased 7.6% in an average year (not including dividends) per www.macrotrends.net

The best year produced a price increase of 46.6%. Can you guess when that was? Would you have guessed 1933 right in the midst of the Great Depression? Yes, it’s true. Throughout history we’ve often found the best daily, monthly and annual returns during the darkest of times.

The worst year for the S&P 500 was just two years earlier (1931), when the S&P 500 closed the year 47.1% lower than it began the year.

Since 1928, the S&P 500 was positive, or at least flat, in 62 years and negative in 28 years (not including dividends). So it lost ground 31% of the time. That means the S&P 500 has ended lower about 1 every 3 years.

The average appreciation in positive years has been 17.8% while negative years have produced an average decline of 15% (not including dividends).

For the same period, 10-year Treasury Bonds have experienced a 5.2% return in the average year. The maximum one-year return was 32.8% in 1982. The worst one-year return was an 11.1% loss in 2009 as we were exiting the Great Financial Crisis and beginning what turned out to be one of the greatest stock bull markets in history.

10-year Treasury Bonds have produced positive returns in 74 of the last 90 years leaving negative returns in only 16 of those years. That means investors have lost money only 1 of every 5.6 years. The average return in positive years has been 7.1% while the average loss in negative years has been 4.1%.

But What’s Really Interesting…
But what’s really interesting to me is that the S&P 500 and 10-year Treasury Bonds have BOTH lost money in the same calendar years only FOUR TIMESAgain, not including dividends…with dividends it’s only been three times.

This illustrates the great importance of diversification. Typically, Treasuries and U.S. stocks don’t move down together. In most years at least one of those investments made money, and, more often than not, BOTH those assets produced positive returns in the same year.

Let me know if you have any questions.

Have a great week!

Past performance is no guarantee of future results. Not investment advice but general education.

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