Setting Your Expectations

Chart of the Week: Setting Your Expectations

At the start of every year, investors are inundated with outlooks and forecasts—most aren’t worth the paper they are written on. Rather than speculate on the future, I like to look back and see what history suggests our baseline expectation should be for market returns.

I examined rolling 12-month returns for the Vanguard 500 Index (as my proxy for stocks), Vanguard Total Bond Market Index (bonds) and Vanguard Cash Reserves Federal Money Market (cash) since each fund’s inception. The record tells us to enter the year expecting gains. Stocks—which should beat bonds, and both should beat cash—were positive in 82% of the 532 rolling 12-month periods, with an average gain of nearly 13%.

In other words, the burden of proof should always be on the pessimists calling for crashes. Sure, they’ll be right from time to time, but most of the time, and over time, the optimists triumph.

.

Note: Chart shows average 12-month rolling returns through Nov. 2021 using month-end periods from Aug. 1977 (Vanguard 500 Index), Dec. 1987 (Vanguard Total Bond Market Index) and June 1976 (Vanguard Cash Reserves Federal Money Market). Sources: Adviser Investments, Morningstar.

This material is distributed for informational purposes only. The ideas and opinions contained herein  should not be viewed as recommendations or personal investment advice. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2021 Adviser Investments, LLC. All Rights Reserved.

Tags:

Bi-Weekly Newsletter