What returns can I expect from stocks?

Question: I’ve only been investing for two years, and in that time the stock market has risen by about 30%. Is this normal, or are we due for a fall?

Answer: The answer depends on whether we’re talking about long or short time periods.

Over a two-year period, a 30% gain is certainly in the realm of what’s considered normal. I’ll spare you the statistics lesson, but a gain of as much as 45.2% or a loss of as much as 22.8% in any single year are both not statistically unusual. And the market’s performance has been outside of these bounds twice in the past 50 years, so even this isn’t a guaranteed range.

The point is that over one, two, or even five years, the stock market can be extremely unpredictable. The market could conceivably rise by 30% this year, fall 20% next year and rise another 40% in 2020.

Having said that, stocks are surprisingly predictable over long periods, say

20 years or more. Over a period of 20plus years, the major stock indexes have generated annualized total returns of

9% to 11%, depending on the time you’re looking at. For example, from 1965 through 2017 (53 years), the S&P 500 produced annualized returns of 9.9%.

As a final note, just because one or two years were particularly good or bad doesn’t mean the market is about to reverse course. The S&P 500 has had two nine-year stretches over the past 50 years where the index produced positive total returns every year, including the one we’re still experiencing.