Traders react after the closing bell at the New York Stock Exchange (NYSE) in New York City, US, December 13, 2023.
Brendan McDermid | Reuters
No matter how you feel about the world these days, you’re probably excited about the stock market.
I S&P 500 is up nearly 30% this year so far.
But it’s important for investors to moderate their expectations and remember that years like this don’t wait, says Cathy Curtis, a certified financial planner and founder and CEO of Curtis Financial Planning in Oakland, California.
“Investors should know that the stock market has averaged annual returns of more than 10% for decades,” said Curtis, a member of CNBC’s Advisor Council.
“In the past year there has been a significant increase in excess of this amount and it would be unusual for that to continue for a period of many years,” he added.
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Indeed, the S&P 500’s return has been greater than 2024 in only 17 of the past 74 years, Morningstar Direct found. For example, in 1954, the S&P 500 increased more than 52%. It returned about 31% in 1989.
(The financial services firm looked at how many years, since 1950, the index has risen above 29.24%, which is its actual return through 2024, as of Wednesday’s close.)
Multiple consecutive years of significant gains are rare.
The S&P 500 is up more than 24% in 2023, and if the index rises this year by more than 20%, it would be only the third time there have been reversals of that size in the past century, according to the report. Deutsche Bank.
That the market’s return is unlikely to be higher going forward doesn’t mean you should sell your shares, Curtis added.
“The best way to benefit from annual returns is to stay in the market,” he said.
Ups and downs are signs of a healthy market – and you will benefit if you stay invested.
Years like this can help close out periods when the market is too focused on the red. The S&P 500 fell more than 36% in 2008. By 2022, it has decreased by more than 18%.
“We have a ‘recency bias’ so there is a tendency to expect that recent performance will continue,” said Allan Roth, CFP and accountant at Wealth Logic, Colorado Springs, Colorado.
“But a change in meaning is mathematically possible,” Roth said.
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