Investors are going to be surrounded by financial forecasters predicting returns for 2022.
I estimate that after more than 16% in annualized gains from the S&P 500 over the past 3, 5 and 10 years, most would anticipate that the markets would return more in line with “average” long-term returns of 8% to 10%. , The Nasdaq and S&P 500 have historically been at their peak of 10-year returns and are up 20% and 16% annually, respectively.
We recognize that mean reversion exists, particularly in finance, and would also expect diminishing returns over the long term, but we will leave predictions for 2022 returns to the “experts.”
Since 1930, the S&P 500 has averaged 9.79% per year. But is that average return typical? You might be surprised to hear the answer. In those 90 one-year periods, the S&P 500 has returned only between 8% and 12% four times. This is less than 5% of the time. Yet year after year, analysts told investors to expect averages.
Market average returns are rarely earned in any one year. What is distinctive is a wide range of returns that will challenge investors in bad years and reward them in good years. Expect volatility, expect a new set of worries that the market will have to obsess and overcome, but don’t expect 10%.
Brian Talkington is the Managing Partner of Essential Capital Management. He is also a trader and CNBC contributor on “Halftime Report.” His areas of expertise include all aspects of asset management with a focus on capital markets, options and investor behavior.