Ethan Gilbert

November 24, 2021

Investing

Things to be Thankful For: Stock Market Returns, Not Bank Interest

Over the last 90 years, the stock market has been great to investors. No one knows what the market will do tomorrow, but the longer your horizon, the more the odds are in your favor – and you don’t have to wait very long for the numbers to look pretty good. With bank interest close to 0%, it’s worth exploring the odds the stock market does better than flat over varying periods of time.

Daily: Since 1928, we’ve had 23,588 trading days. The odds the market is up on any one day is 53% and the average return has been 0.03%. On a daily basis, the market is basically a coin flip.

Monthly: The odds get better on a monthly basis. 63% of the time the stock market has a positive return, and it averages nearly 1%.

Quarterly: Looking at data quarter by quarter, the percent of positive returns increases to 68%, or a little better than 2/3. The average return for all quarters is 2.5%.

Yearly: On a calendar year basis, we’ve seen positive returns 74% of the time for an annualized average of 10%.

Two-Year Periods: By increasing the time horizon to two years, the odds of a positive return get to 83%. If you can’t identify a definite need for your cash in the next 24 months and you aren’t super risk-averse, it’s worth taking some stock market risk.

Five-Year Periods: When we get up to rolling five-year periods, we see positive returns 87% of the time.

Ten-Year Periods: Over the 87 observed 10-year periods since 1926, the stock market has been positive in all but four of them, or 95%. The only instances of negative returns were in the Great Depression and the period that included both the dot-com bubble and the 2008 financial crisis.

It’s remarkable how many individuals and institutions we speak with that have excess money in bank accounts earning nothing. If you can’t identify a somewhat exact need for cash in the next 12 months, you should probably have something in the stock market. It may only be a small percentage but it’s worth it. The stock market can seem scary, especially when it’s trading at all-time highs, but with the right advisor, diversification, and a disciplined approach, it’s a risk worth taking.

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