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We're Not In The Prediction Business Thumbnail

We're Not In The Prediction Business

Mike Earl, CFP®, CPWA®

When I first drafted this post (on 8/7/19), the S&P 500 Index was 5.75% off its recent high. As I prepare to post this to our website (two days later, on 8/9/19), the U.S. market has rallied a bit, so that we are less than 4% off the all-time high for the S&P 500 Index. When you put it like that, it doesn’t sound too bad. But if you’re watching the news, it can feel a whole lot worse. And if you’re checking the value of your portfolio online each day (a really bad idea), it’s painful to see the declines in your portfolio – even if they are modest in the grand scheme of things.

For what it’s worth, the Chinese stock market is 28% off its all-time high – which was set back in early 2018. This is not to say that we are “winning” and China is “losing.” I don’t know how this trade war will shake out.

And this might surprise you, but I don’t know what the U.S. stock market will return over the next year. It’s really important to make that admission. There is no shortage of “experts” willing to make predictions (often to sell a newsletter or to gain clicks for advertising dollars). 

While I don’t know what the short-term returns in the U.S. stock market will be, there are some things I do know (all sourced from Professor Damodaran at NYU’s Stern School of Business):

  • From 1928-2018, the U.S. stock market has had a positive return in 73% of the calendar years (66 of 91 years had positive returns).

  • If you had invested $100 in the S&P 500 Index at the beginning of 1928 (about 22 months before the Great Depression began), you would have had $382,850 at the end of 2018 – assuming you had reinvested your dividends. 

  • If you had invested $100 in 10-year U.S. Treasury Bonds at the beginning of 1928, you would have had $7,309 at the end of 2018 – or $375,500 less than if you had invested your money in stocks.

  • Dating back to 1950, the average intra-year drawdown in U.S. stocks is -13.3%. 

  • Since 1950, about half of the calendar years included a drawdown of 10% or more in stocks. Corrections are quite common, yet U.S. stocks have still marched higher.

As the famed investor peter lynch once said:

“Far more money has been lost by investors in preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

What does this mean to you, our client?

Most of our clients have a long-term time horizon for their portfolio. And over any longer-term period in the u.S. Stock market’s history, investors have been rewarded for staying invested for the long haul.

Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.

Holding investments for the long term does not insure a profitable outcome. Investing involves risk and you may incur a profit or loss -- regardless of strategy selected. Examples provided are hypothetical and for illustration purposes only.

The S&P 500 Index is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. One cannot invest directly in an index. Past performance does not guarantee future results.

U.S. government bonds and Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.


  1. NYU Professor Aswath Damodaran: http://pages.stern.nyu.edu/~adamodar/
  2. Ben Carlson: https://awealthofcommonsense.com/2018/12/the-one-constant-in-the-stock-market/