Stock Market Returns Are Lumpy

“The average long-term experience in investing is never surprising, but the short- term experience is always surprising.” – Charley Ellis

The stock market has basically gone nowhere for a while now. According to the sharp team over at Bespoke Investment Group, the S&P 500 has crossed the 2100 level to the upside 25 times over the past 18 months.

Investors can start to get fidgety during these slow periods where stocks seem to fluctuate but not make much progress. The thing is, stock market returns have always been lumpy. Historical returns always look great on paper, but the actual experience of living through them is never really close to the average results. Average is typically the exception, not the rule.

For example, take a look at the S&P 500 and how lumpy the returns have been over time:

A similar pattern emerges when you look at foreign stocks:

And emerging markets:

Over these various time frames these markets returned 9.5%, 9.2% and 10.5% respectively on an annual return basis. What’s not to like about those average results?

But you can see that the path to get to those averages has been anything but easy. Those return streams are extremely lumpy. They include losses. They include those periods when stocks went nowhere for some time. And they also include large gains.

Sometimes the gains last for years on end while other times they’re short lived. The same applies to losses and sideways markets. Markets are a mixture of breath-taking gains, gut-wrenching losses and maddeningly dull periods where they make no progress whatsoever.

There are always going to be good reasons to not like investing in the stock market. Stock returns are inconsistent, they go down, they go nowhere, they don’t go up as much as you would like and they rarely line up with your financial milestones by providing perfect entry and exit windows.

If you’re invested in the stock market for long stretches of time the best advice I have to offer is this — get used to it. This is what happens. So it goes.

Further Reading:
Playing the Probabilities