Distribution of Market Returns

While no one can reliably predict the future, the past may offer perspective on recent market events and the long-term benefits of equity investing.

The chart below shows the historical distribution of US market returns since 1926. The performance years are stacked in order of return range with the far left including the years with the greatest market decline and the far right including the years with the greatest market gain. Each rectangle represents a given year, which is listed in the rectangle along with the corresponding gain or loss for that year. The red shaded rectangles indicate years where the US markets saw a decline whereas blue colored rectangles indicate years where the market saw a gain.

Market Returns

The graphic highlights that performance during 2008 and 2009 (black shaded rectangles) was extreme by historical standards, and that over time, the years the market saw a positive return have outnumbered the years the market saw a negative return at a rate of three to one, with positive performance more concentrated in the higher ranges of returns.

While events like the stock market meltdown in 2008 stick out in our minds for causing so much anxiety, the chart above shows that events such as these are in fact not the norm. History shows that the stock market has rewarded investors who can bear the risk of stocks and stay committed through various periods of performance over the long-term through the use of a well-diversified portfolio.

About Chas Boinske

Charles P. Boinske, CFA, is a 30 year investment management veteran overseeing the strategic direction and portfolio management process for Independence Advisors, LLC. Have a question for Charles? CLICK HERE TO ASK CHARLES

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