Historical Market Return and Current Expectations

Have you been looking at your portfolio’s performance lately? Has it met with what you were expecting? Do you understand how last year’s returns stacked up and how that might translate into future returns by location and sector moving forward?

It’s interesting to take in today’s guest post, originally published on Banker on Wheels back in December 2021, in light of the recent market volatility. Many posters on the Bogleheads forum, and other financial experts broadcasting on a variety of outlets, have collectively forecasted lower equity returns in the coming decade or two.

This analysis offers a similar view, with some suggestions on how to position yourself to emerge as a successful investor during this time.

It’s the humbling time of the year to acknowledge the limits of our ability to predict markets. For the first time in decades, inflation needs to be properly accounted for when looking at asset class returns but also our plans.

If you remained invested in stocks, your objectives may be closer than ever. Over the past decade, world equities gained over 320% and returned 12.4% annually. It’s probably also time to rebalance your portfolio.  Sell some of the winners, and then buy some losers.

In fact, this is what Vanguard’s model implies (more on that below). While this is great for learning with some small allocation, do not forget the rules of the game and try to remain forecast-free.

Best Performers of the Past Decade

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Asset Classes Sorted By Performance and 10-Year Average

– In 2021, the S&P 500 hit 71x, which was a record high–the most in 26 years–and the second most ever after 1995 (77x).

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