Ask investors what kind of return they expect out of stocks in any given year, and many will respond with the market’s historical average return. For the S&P 500 Index from January 1926 through December 2023, that’s been a little over 12%. Unless you have a crystal ball, that’s a reasonable guess in any given year.

And yet, history shows us what we end up getting from stocks is likely to be far from the average. Since 1926, only 15 out of 98 years had returns within five percentage points of the 12.2% average. In the other 83 years, the average deviation was over 18 percentage points. Talk about an uncommon average!

Actual returns can deviate from expected returns because information and circumstances change. If the news is better than expected, markets may go up. Of course, the reverse is true if the news is disappointing. In a world with so many potential sources of news—the economy, elections, geopolitical conflict—it shouldn’t be surprising that we often receive returns either much higher or lower than the long-run average.

 

exhibit 1

Calendar-Year Returns for the S&P 500 Index

1926–2023

Shaded area is the range spanning the long-term average, plus or minus 5%. In USD. S&P data © S&P Dow Jones Indices LLC, a division of S&P Global. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

Past performance is not a guarantee of future results.

Navigate Market Uncertainty with Professional Guidance

While market averages provide useful context, your financial future requires a strategy that accounts for the inherent unpredictability of returns. As the data shows, expecting “average” returns in any given year often leads to surprises – both positive and negative. Instead of trying to predict short-term market movements, wouldn’t you rather have a comprehensive plan designed to weather various market conditions?

At Prosperity Capital Advisors, we understand the challenge of staying invested when returns deviate significantly from expectations. That’s why our affiliated advisors take a different approach – creating personalized, long-term strategies that help you stay focused on your goals regardless of market conditions. Through The Bucket Plan® process, we help clients develop dynamic wealth management plans that consider:

  • Risk management strategies that account for market volatility and unexpected returns
  • Diversification approaches that help buffer against extreme market movements
  • Time-based allocation that aligns with your specific investment horizon
  • Income planning that provides consistency through varying market conditions

Don’t let market uncertainty derail your financial future. Connect with a PCA affiliated advisor today to discover how The Bucket Plan® can help you build and preserve wealth through unpredictable markets.

Disclosure: Prosperity Capital Advisors prioritizes client interests with a planning-first approach, offering tailored strategies that account for market unpredictability and varying return patterns. Our dedicated team helps clients avoid common pitfalls such as expecting “average” returns and short-term market timing, ensuring strategies are built around individual goals and long-term investment horizons rather than annual return predictions. See our full list of advisors by clicking here.

This blog was created and published by Dimensional Fund Advisors. This article originally appeared in Above the Fray, a weekly newsletter for Dimensional clients. Learn more about Dimensional Fund Advisors here. The original post was published on October 4, 2024, and can be found here.