There seems to be a lot of shock out in the world that markets are down as if people have forgotten stocks don’t go only straight up but also go down. I certainly understand it from younger investors who have really never been through a bear market / recession before, but I’m surprised to see so many more experienced people also caught off guard.

The reality is out of the 97 years from 1926 through 2022, the U.S. stock market was up 71 of those and down the other 26 years. That means, on average, stocks lost money in 1 of every 4 years.

2022, so far, is certainly no exception. Through the end of Q3, the global stock market was down about 26%, the bond market was down almost 15%, and global real estate* was down about 29%. Ouch. Brutal year.

Below is a chart showing the calendar year returns for the S&P 500 just to illustrate how volatile and random the U.S. stock market truly is from year-to-year.

Pundits, newsletter writers, and financial advisors will give reasons for price movements in hindsight, but always remember this: ANNUAL RETURNS ARE NOT PREDICTABLE. It’s simply too short of a time period and too heavily influenced by unpredictable things (human emotions, geopolitical events, weather, central bank policy, etc…).

However, even with all that volatility, randomness and unpredictability, along with the market being down over 25% of the time, stocks do very well over the long haul. See the growth of $100 over the last 97 years below.

$100 would have grown to little over $1,000,000 as of 09/30/2022 (not including expenses, taxes, etc…).

The response to that is usually: “Well then why don’t we just invest 100% of our portfolios in stocks?”

The answer is because nobody has a 100-year time horizon. Most my clients, at least, are already withdrawing, or about to withdraw, from their portfolios for retirement expenses, gifting, etc…

Yes, if someone (or an enduring institution) has a very long time horizon without needing much from the portfolio and/or they have very little assets relative to what they’ll be saving in the future, then perhaps they can justify a 100% stock allocation (some young people in their 20s and 30s, for example, or folks with an immense amount of resources relative to their needs).

Essentially, the only folks who could afford to be so aggressive are those who aren’t financially or emotionally impacted as a result of losing 50%+ of their portfolio value (very few people have the tolerance or financial capacity for that kind of volatility).

That’s why I get so disturbed when I hear of advisors using 100-year charts to try and sell performance / stocks. It’s extremely irresponsible and not at all relevant to their clients’ situations. At best those advisors are naïve and/or lazy. At worst, they’re deceitful.

Below is a chart of rolling ten-year returns. You’ll notice there is still a lot of volatility in even that timeframe with annualized returns ranging from -1.4% to 20.1%.

What’s the takeaway here?

It’s important for all investors to understand that markets (stocks, bonds, commodities, real estate, etc…) are volatile and that they will lose money at various times. Periodic losses are inevitable. If they can’t handle that they should not be invested in those assets (but then they also won’t participate in the long-term growth).

Many depression-era children never owned stocks in their lifetimes, which was a very costly decision for them. On the other hand, perhaps it was better for them to earn interest on cash in the bank and on CDs than own stocks and get skittish at the first sign of volatility.

Stocks will always have good years and bad years. It’s how folks are positioned going into those periods and how they react (or don’t react) that determines whether they’re successful or not over time.

It seems U.S. investors, generally speaking, have been far too cavalier with their investments because the markets were so good for so long.

The successful investors are those who don’t get too excited when markets are doing well and don’t get too fearful when they’re doing poorly (as long as portfolio positioning is appropriate beforehand). Volatility is an embedded, inherent characteristic of investing.


Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here. Any forecasts made are the opinion of the author. Markets are famously difficult to predict precisely because so many factors are involved…particularly over short time periods. And many folks don’t have the patience to see long-term forecasts play out because so much can happen in the interim..

This is not investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.

Views provided here are current only as of the moment of posting and are subject to change at any time without notification.

*Indexes Referenced: 
Global Stock Index: MSCI All Cap World Index
Bond Index: Bloomberg U.S. Aggregate Bond Index
Global Real Estate: FTSE / EPRA NAREIT Global REITs

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