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WT Wealth Management - There's No Such Thing as Average in Real Life

We understand that this year has been challenging, disappointing and stressful for our clients. Over the past 6 years, returns within the equity markets were easy. We were all conditioned to "buy the dips" – after all, sell-offs lasted only weeks or maybe a few months back then. But from 2022, you would have to go back to 2008 to find a year that similarly tested our commitment to a long-term plan. The old Warren Buffet quote, "you don't know who's swimming naked until the tide goes out," was never more prophetic than 2022 when many investors had outsized positions in cryptocurrencies and high multiple (i.e., expensive) technology companies. Returns there had once been spectacular, but in 2022, the tide was out.

Historically, the outsized returns of the S&P 500 have been worth the risk as there were few other places where you could find 10% average annual returns. The key to that statement is "average annual". The historical average yearly return of the S&P 500 is 10.3% over the last 50 years, as of end of September 2022 (assuming dividends are reinvested). (1)

Check out these two charts published last week from the internet blog: A Wealth of Common Sense. From 1977-1999, the annual returns of the S&P 500 were down only 3 times in 23 years on a total return basis. The market was up 20% or more in nearly half of all years and didn't have a single year that finished down double-digits.


S&P 500 Annual Returns: 1977-1999
https://awealthofcommonsense.com/2022/10/could-we-see-another-lost-decade-in-the-u-s-stock-market/


Now look at the annual returns since 2000. There have been six down years (assuming 2022 still finishes lower, this chart only shows through 9/30), two of which were down more than 20%. If 2022 maintains its current lows or declines even further, that would mean three years of greater than 20% losses. During this same 23-year time period, there have been six years with gains of 20% or more.


S&P 500 Annual Returns: 2000-2022
https://awealthofcommonsense.com/2022/10/could-we-see-another-lost-decade-in-the-u-s-stock-market/


As you can see, an "average" 10.3% return is actually not common at all, with only 1993 at 9.97% and 2004 at 10.75% reflecting anything close. The 50-year-average annual return comes from a blend over many years of outsized positive returns, counter-balancing negative returns, and only a very few years with something approaching an average annual return. While your long-term investment plan may assume average annual returns in the stock market, it certainly shouldn't assume average annual returns every year. Investing is a long-haul game, averaged over years. Speculation is the short-term opposite of investing.

While many investors will see nothing good out of a difficult 2022, we'd encourage you to look a little closer. The largest hurdle to most retirees over the last decade has been historically low interest rates that forced retirees into riskier investments as they sought more compelling returns. Now we see 2-year treasuries approaching 5% (just one year ago a 2-year treasury was paying only 0.5%) and corporate bonds approaching 6%. Finally, there is a real alternative for people seeking a place to invest their money other than the equity markets.

With the Federal Reserve now normalizing interest rates for the first time since 2007, retirees have the chance to de-risk portfolios and generate measurable returns from the safe side of their portfolio for the first time in 15 years. We encourage you to contact your advisor and schedule a time to review your asset allocation mix and plan for the next decade of investing.


Sources
  1. Average Historical Stock Market Returns for S&P 500
    TradeThatSwing.com



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Any opinions expressed on this website are the opinions of WT Wealth Management and its associates only. Material listed on this website is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. You should always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETF’s carry certain specific risks and part or all of your account value can be lost.

At WT Wealth Management we strongly suggest having a personal financial plan in place before making any investment decisions including understanding your personal risk tolerance and having clearly outlined investment objectives.

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WT Wealth Management is an SEC registered investment adviser, with in excess of $100 million in assets under management (AUM) with offices in Flagstaff, Scottsdale, Sedona and Tucson, AZ along with Jackson Hole, WY and Las Vegas, NV. WT Wealth Management is a manager of Separately Managed Accounts (SMAs). With SMAs, performance can vary widely from investor to investor as each portfolio is individually constructed and managed. Asset allocation weightings are determined based on a wide array of economic and market conditions the day the funds are invested. In an SMA, each investor may own individual Exchange Traded Funds (ETFs), individual equities or mutual funds. As the manager we have the freedom and flexibility to tailor the portfolio to address an individual investor's personal risk tolerance and investment objectives – thus making the account “separate” and distinct from all others we manage. An investment with WT Wealth Management is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Any opinions expressed are the opinions of WT Wealth Management and its associates only. Information offered is neither an offer to buy or sell securities nor should it be interpreted as personal financial advice. Always seek out the advice of a qualified investment professional before deciding to invest. Investing in stocks, bonds, mutual funds and ETFs carries certain specific risks and part or all of an account's value can be lost. In addition to the normal risks associated with investing, narrowly focused investments, investments in smaller companies, sector and/or thematic ETFs and investments in single countries typically exhibit higher volatility. International, Emerging Market and Frontier Market ETFs, mutual funds and individual securities may involve risk of capital loss from unfavorable fluctuations in currency values, from differences in generally accepted accounting principles or from economic or political instability that other nations experience. Individual bonds, bond mutual funds and bond ETFs will typically decrease in value as interest rates rise. A portion of a municipal bond fund's income may be subject to federal or state income taxes or the alternative minimum tax. Capital gains (short and long-term), if any, are subject to capital gains tax. Diversification and asset allocation may not protect against market risk or investment losses. At WT Wealth Management, we strongly suggest having a personal financial plan in place before making any investment decisions including understanding personal risk tolerance, having clearly outlined investment objectives and a clearly defined investment time horizon. WT Wealth Management may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. WT Wealth Management's website is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of WT Wealth Management's website should not be construed by any consumer and/or prospective client as WT Wealth Management's solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the internet. Any subsequent, direct communication by WT Wealth Management with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. A copy of WT Wealth Management's current written disclosure statement discussing WT Wealth Management's registrations, business operations, services, and fees is available at the SEC's investment adviser public information website (www. adviserinfo.sec.gov) or from WT Wealth Management directly. WT Wealth Management does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to WT Wealth Management's web site or incorporated therein, and takes no responsibility therefor. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.

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