Investors are besieged by financial fortune tellers who forecast returns for 2022.
My guess is that after the S&P 500 annualized returns of more than 16% over the past 3, 5, and 10 years, most are predicting that the markets will be more in line with the “average” long-term return of 8% to 10. will return%. The Nasdaq and S&P 500 are historically in the top decile of 10-year returns, around 20% and 16% annualized, respectively.
We believe there is mean reversion, especially in the financial sector, and we would expect lower returns in the longer term, but we leave predictions for returns in 2022 to “the experts”.
Since 1930, the S&P 500 has averaged 9.79% per year. But is that average return typical? The answer may surprise you. In those 90 year old periods, the S&P 500 has only come back four times between 8% and 12%. That’s less than 5% of the time. Still, year after year, analysts tell investors to expect the average.
The average return on the market is seldom achieved in a year. Typical is a broad spectrum of returns that challenges investors in bad years and rewards them in good ones. Expect volatility, expect new worries for the market to face and overcome, but don’t expect 10%.
Bryn Talkington is the managing partner of Requisite Capital Management. She is also a trader on “Mid Term Report” and a CNBC contributor. Her areas of expertise cover all facets of asset management with a focus on capital markets, alternatives and investor behavior.