The Average Is Not The Norm (Part 2)

In The Average Is Not The Norm, I wrote about the variance of stock market returns. The long-term average return on US stocks is close to 10%.

However, stocks almost never return exactly 10% in any given year.

In fact, stocks rarely deliver returns close to 10% in any given year.

From 1990 to 2023, only 2 years delivered returns between 8% and 12%.

The chart above shows the?average annualized return by decade for the S&P 500 from the 1940s through the 2010s.

When we look at the investment performance over decades, we observe a similar result: the average is not the norm.

The last decade with a return close to 10% was the 1960s. Since then, we have seen decades with returns well below or well above the long-term average.?

What does this mean for me?

1. Be mindful of sequence risk – This is the danger that the timing of withdrawals from a retirement account will damage the investor's overall return. Withdrawals from your portfolio during a down market are more costly than the same withdrawals in an up market.
2. Look for opportunities to diversify – The data above are just for US stocks. Diversifying by adding different geographies or asset classes to your portfolio can help smooth returns.
3. Have a plan – Make sure that your investment plan is prepared for a range of potential outcomes, not just the average.

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Alex Purdom

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc. Insurance services are available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are available through CIBC Wood Gundy Financial Services (Quebec) Inc. The CIBC logo and “CIBC Private Wealth” are trademarks of CIBC, used under license. “Wood Gundy” is a registered trademark of CIBC World Markets Inc. The views of Alex Purdom do not necessarily reflect those of CIBC World Markets Inc. If you are currently a CIBC Wood Gundy client, please contact your Investment Advisor.

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