We are not sure exactly who coined this phrase – some think Benjamin Disraeli, some think Mark Twain, and it could be many others. It is not to say that statistics are lies, but it is easy enough to manipulate data to allow it to tell the story that suits the storyteller. We are bombarded by statistics every day! It’s worth remembering that these statistics can be subjective and you should always do your own research before blindly trusting what we hear every day.
Recently I read an article published by the Motley Fool, which made me think about all this analysis. Over the last seventy one years (1950 – 2021) the average annual return of the S&P 500 was 10.13%. That of course is in US Dollars, and I am fairly convinced that the majority of investors would all be quite happy with that return. The problem is that only seven out of seventy one years posted a return between 8% and 12%! The data tells us that actually we should never expect to get a return of 10.13% in any year, and not even to expect a return of 8% to 12%. Rather, massive swings in performance are the order of the day – including some brutal downturns and some exhilarating up years! We need to appreciate that volatility is inherent in the market and when times are tough, commitment to your investment strategy is critical.
To stay with the statistics above; in 1973 the S&P 500 delivered a return of -17.4%. It was followed by a -29.7% return in 1974. In 1975 it returned 31.6% and 19.15% in 1976. Every year the stock market is playing out long term themes while dealing with short term cross currents. More recently, 2018 was a difficult year. There was much political posturing around the US-China trade war and the index declined by 6.2%. The return in 2019 was 29.9% as interest rates remained low and companies produced strong earnings growth. And then 2020 came around, with the pandemic starting in March of that year and with it a precipitous fall in the index. However, as the government stimulated the economy, and interest rates remained at multi decade lows, the market returned 16.3% anyway! 2021 followed the momentum of 2020 and returned 26.9% – although the sectors you were invested in made a big difference as the disparity of returns across sectors showed that growth stocks were where one needed to be invested.
Here we are in 2022 and a third of the way through the year and things are not looking too positive!! Rising interest rates, runaway inflation, geopolitical tensions on top of what was a fairly expensive market have led to losses this year. A lot could happen in the next eight months, but it is not looking great right now!
I am going to get technical for a moment – talking about averages. We look at the mean return and then we look at the standard deviation from that return to find the ranges of returns. On this data the standard deviation is 16.04%. So from our average of 10.13% consider that around one out of three years we will potentially have a return worse than -5.9% or greater than 26.2%. And if we take that out to twenty years, one year’s return could be worse than -21.95% or greater than 42.22%. And this is what we refer to as volatility. It can be frightening – soul destroying in the short term! But the best thing we can do is be aware that this is the nature of the market. Stay balanced and try not to be thrown off kilter in a market that will keep doing crazy things!! You’ve heard it before, but let me say again – the best approach is time in the market, not trying to time the market!
As always, I am here for you if you’d like to chat about the specifics of your own investment portfolio. I urge you to keep your head down and trust that this too will end! We are acutely aware of how bad the returns are looking, and it may sound hollow, but we feel the pain alongside you. I am sorry – this is a stressful time!!
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.
Lies, damn lies and statistics
We are not sure exactly who coined this phrase – some think Benjamin Disraeli, some think Mark Twain, and it could be many others. It is not to say that statistics are lies, but it is easy enough to manipulate data to allow it to tell the story that suits the storyteller. We are bombarded by statistics every day! It’s worth remembering that these statistics can be subjective and you should always do your own research before blindly trusting what we hear every day.
Recently I read an article published by the Motley Fool, which made me think about all this analysis. Over the last seventy one years (1950 – 2021) the average annual return of the S&P 500 was 10.13%. That of course is in US Dollars, and I am fairly convinced that the majority of investors would all be quite happy with that return. The problem is that only seven out of seventy one years posted a return between 8% and 12%! The data tells us that actually we should never expect to get a return of 10.13% in any year, and not even to expect a return of 8% to 12%. Rather, massive swings in performance are the order of the day – including some brutal downturns and some exhilarating up years! We need to appreciate that volatility is inherent in the market and when times are tough, commitment to your investment strategy is critical.
To stay with the statistics above; in 1973 the S&P 500 delivered a return of -17.4%. It was followed by a -29.7% return in 1974. In 1975 it returned 31.6% and 19.15% in 1976. Every year the stock market is playing out long term themes while dealing with short term cross currents. More recently, 2018 was a difficult year. There was much political posturing around the US-China trade war and the index declined by 6.2%. The return in 2019 was 29.9% as interest rates remained low and companies produced strong earnings growth. And then 2020 came around, with the pandemic starting in March of that year and with it a precipitous fall in the index. However, as the government stimulated the economy, and interest rates remained at multi decade lows, the market returned 16.3% anyway! 2021 followed the momentum of 2020 and returned 26.9% – although the sectors you were invested in made a big difference as the disparity of returns across sectors showed that growth stocks were where one needed to be invested.
Here we are in 2022 and a third of the way through the year and things are not looking too positive!! Rising interest rates, runaway inflation, geopolitical tensions on top of what was a fairly expensive market have led to losses this year. A lot could happen in the next eight months, but it is not looking great right now!
I am going to get technical for a moment – talking about averages. We look at the mean return and then we look at the standard deviation from that return to find the ranges of returns. On this data the standard deviation is 16.04%. So from our average of 10.13% consider that around one out of three years we will potentially have a return worse than -5.9% or greater than 26.2%. And if we take that out to twenty years, one year’s return could be worse than -21.95% or greater than 42.22%. And this is what we refer to as volatility. It can be frightening – soul destroying in the short term! But the best thing we can do is be aware that this is the nature of the market. Stay balanced and try not to be thrown off kilter in a market that will keep doing crazy things!! You’ve heard it before, but let me say again – the best approach is time in the market, not trying to time the market!
As always, I am here for you if you’d like to chat about the specifics of your own investment portfolio. I urge you to keep your head down and trust that this too will end! We are acutely aware of how bad the returns are looking, and it may sound hollow, but we feel the pain alongside you. I am sorry – this is a stressful time!!
Asset Class Returns
The table below represents a rolling year view of the major asset class returns that we track. It offers a view of the asset classes we use to diversify your portfolio.