Traders react after the closing bell on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., December 13, 2023.
Brendan Mcdermid | Reuters
However you feel about the world these days, you’re likely happy with the stock market.
The S&P 500 is up nearly 30% this year so far.
But it’s important for investors to temper their expectations and to remember that years like this one are rare, said Cathy Curtis, a certified financial planner and the founder and CEO of Curtis Financial Planning in Oakland, California.
“Investors should know that the stock market has an average annualized return of over 10% for decades,” said Curtis, a member of CNBC’s Advisor Council.
“The past year has seen growth way over this amount and it would be highly unusual for that to continue for a multi-year timeframe,” she added.
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Indeed, the S&P 500’s return has been larger than 2024’s in only 17 out of the last 74 years, Morningstar Direct found. For example, in 1954, the S&P 500 swelled more than 52%. It returned around 31% in 1989.
(The financial services firm looked at how many years, from 1950, the index increased by more than 29.24%, its exact return so far for 2024, as of the end of Wednesday.)
Multiple years in a row of significant gains are even rarer.
The S&P 500 rose more than 24% in 2023, and if the index rises this year more than 20%, that would be only the third time that there have been back-to-back gains of that size in the past century, according to Deutsche Bank.
That market returns are unlikely to be as high going forward doesn’t mean you should sell your stocks, Curtis added.
“The best way to benefit from the annualized return is to stay in the market,” she said.
Ups and downs are the signs of a healthy market — and you’ll benefit if you stay invested.
Years like this one can help to make up for periods where the market is deep in the red. The S&P 500 was down over 36% in 2008. In 2022, it dropped over 18%.
“We have ‘recency bias’ so there is a tendency to expect the recent performance to continue,” said Allan Roth, a CFP and accountant at Wealth Logic, based in Colorado Springs, Colorado.
“But reversion to the mean is statistically far more likely,” Roth said.