What You Can’t See in Stocks’ Stellar Long-Term Returns

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In mid-November, US stocks were up about 11% year to date, on track for a ho-hum, nothing-to-see-here 2020—and in line with the market’s long-term history of 10% annualized returns.[i] Right? Not quite. The path toward “average” included unprecedented economic shutdowns aimed at slowing a pandemic, US GDP’s cratering at a -31.4% annualized rate in Q2 before rebounding 31.0% in Q3, the S&P 500’s -33.8% five-week bear market and a presidential election featuring myriad twists and turns.[ii] The chaos underlying this seemingly “average” 2020 year-to-date return highlights a key investing lesson, in Fisher Investments’ view: Average long-term stock returns often obscure wild shorter-term swings. To reach their investment goals, we think investors who need equity-like returns for some or all of their portfolios must expect short-term volatility—and stay disciplined through it.

Stocks may average about 10% annualized gains over the long haul, but that doesn’t mean the market will return anywhere near that figure in a given year. Since 1925 (when reliable US stock market data begin), the S&P 500 has risen between 5% and 15% in 17 calendar years.[iii] More than twice as often—35 years—the index has risen over 20%.[iv] Moreover, the 25 calendar years in which stocks declined raise an important reminder, in Fisher Investments’ view: Stocks’ 10% annualized long-term average includes all bear markets—fundamentally driven downturns of -20% or more.[v] That means annual returns tend to be well above 10% during bull markets—extended periods of rising stocks—and far lower during bear markets.

History shows how dramatic year-to-year swings can be, particularly after a bear market ends and a new bull market begins. The bear market that began in March 2000 ended in October 2002. The S&P 500 fell -22.1% in 2002 but surged 28.7% in 2003.[vi] The next bear market began in October 2007 and ended in March 2009. Returns then tell a similar story: The S&P 500 fell -37.0% in 2008 and jumped 26.5% in 2009.[vii] 

Many calendar-year returns during bull markets also don’t reveal short-term bumpiness related to smaller pullbacks and larger corrections (sentiment-driven declines of -10% to -20%)—both of which are common during periods of rising markets. The 2009–2020 bull market showcases several instances of this. For example, in 2016, the S&P 500 was down -10.3% by mid-February as collapsing oil prices and European bank struggles rattled investors.[viii]Stocks were still in negative territory as late as June 27, before a big second half delivered a 12.0% full-year return—a seemingly “normal” year if you merely looked at the final gain.[ix] Similarly, in 2011, US stocks were up more than 9% in late April—appearing on track for a stellar year.[x] Then volatility struck and, by October 3, the index was down -11.3% for the year.[xi] It then erased all of those declines in less than three weeks and, by year-end, the S&P 500 was up 2.1%—a relatively dull return obscuring a wild ride.[xii]

An even more vivid example of extreme volatility in a seemingly “pedestrian” year: 1987. Those familiar with that year’s “Black Monday” plunge—a -20.5% single-day decline on October 19—may be surprised to learn the S&P 500’s overall return in 1987 was a blasé 2.0%.[xiii] Yet it featured one of the biggest boom-and-busts ever, as investor sentiment swung from euphoria to despair. In late August, the index was up nearly 40% year to date; its subsequent tumble sent it as low as -7.5% on December 4, before a late-year rally pushed it back into positive territory.[xiv]

These examples, in our view, illustrate how short-term volatility is inevitable and unpredictable. However, investors who dump stocks in reaction to that movement may end up missing out on stocks’ powerful long-term gains. Selling stocks because of fear amid volatility may feel like reducing risk but, in Fisher Investments’ view, reacting emotionally is dangerous for investors. Though headlines tend to focus on stocks’ short-term movements, volatility is just one stock market risk investors must contend with. We think a bigger—and less-appreciated—risk is investors’ failing to reach their long-term financial goals. While every investor’s individual asset allocation depends on their unique goals, objectives, time horizon and circumstances, those who require growth will need market-like returns over time, in our view. We think the discomfort of short-term stock market volatility is the price many investors must pay to achieve their ultimate goals.

Stocks’ impressive average long-term returns can cause investors to forget about that inevitable volatility—making them susceptible to emotion-driven decisions when big swings do strike. We think those who understand frequent bouts of volatility are normal stand a better chance of staying disciplined when turbulence does hit.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return.  This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.


[i] Source: FactSet, as of 11/12/2020 and Global Financial Data, as of 12/31/2019. S&P 500 Total Return Index, 12/31/2019–11/12/2020 and annualized return, 12/31/1925–12/31/2019.

[ii] Source: FactSet, as of 11/05/2020. US GDP, annualized growth rate, Q1 2020–Q2 2020. S&P 500 Total Return Index, 02/19/2020–03/23/2020.

[iii] Sources: FactSet and Global Financial Data, as of 12/31/2019. Statement based on S&P 500 Total Return Index annual returns, 12/31/1925–12/31/2019.

[iv] Ibid.

[v] Ibid.

[vi] Source: FactSet, as of 11/09/2020. S&P 500 Total Return Index, 12/31/2001–12/31/2002 and 12/31/2002–12/31/2003. 

[vii] Source: FactSet, as of 11/09/2020. S&P 500 Total Return Index, 12/31/2007–12/31/2008 and 12/31/2008–12/31/2009. 

[viii] Source: FactSet, as of 11/09/2020. S&P 500 Total Return Index, 12/31/2015–02/11/2016. “Stocks dive to lowest level in nearly 2 years,” Matt Egan, CNN.com, 02/11/2016.

[ix] Source: FactSet, as of 11/09/2020. Statement based on S&P 500 Total Return Index, 12/31/2015–12/31/2016.

[x] Source: FactSet, as of 11/09/2020. S&P 500 Total Return Index, 12/31/2010–04/29/2011.

[xi] Source: FactSet, as of 11/09/2020. S&P 500 Total Return Index, 12/31/2010–10/03/2011.

[xii] Source: FactSet, as of 11/09/2020. S&P 500 Total Return Index, 12/31/2010–12/31/2011.

[xiii] Source: FactSet, as of 11/09/2020. Statements based on S&P 500 price returns, 12/31/1986–12/31/1987. Price returns used due to lack of total-return data availability.

[xiv] Ibid.