As I write this post (just after Midnight on Sunday, US EDT), stock markets in the Asia-Pacific region are trading just past mid-day, and mostly down. The Shanghai Composite Index dropped by 2.61%, the (Japan’s) Nikkei was down by 1.77% and Australia’s somewhat commodity-laden All-Ordinaires had declined by 1.28%. Hong Kong’s Hang Seng, somewhat of a world-class market, which is hardly influenced by the Mainland, had dropped by 0.77%. So, I believe that this relative stability–even with some down-side follow-through–on the other side of the world, doesn’t seem to predict more doom-and-gloom for Europe, the U., S. and the rest of the world. Let’s hope so!
This one is for the novice investors–those who only started paying attention to the stock market–well really, when their retirement accounts fell considerably, just over the past couple of weeks or so. You might be wondering if we are going to go back to those double digit returns that you might have gotten used to over the past couple of years. If so: dream on!
The ETF (SPY), which replicates the S & P 500 stock index, posted the following “Total Returns” (dividends, plus or minus changes in market value), for one, three and five year periods, as of July 31, 2015: 11.13%, 17.42% and 16.07%, respectively. With China declining, Japan and Europe in a funk, and commodity-based developing markets quite depressed, it’s time to get back to more normal expectations, which will include years with both positive and negative returns.
“:Stocks for the Long Run”, by University of Pennsylvania Finance Professor Jeremy J. Siegel, has been considered the “Bible”, as to what stock market returns average over the long-term. (Focus on the words “long-term”.) No one tries to predict the short-term–one, three, five year returns–because no one knows when the next war, terrorist attack, successful space mission, technological discovery, etc –will be. So what does this mean for us now, going forward from here? Let’s look long-term now!
Professor Siegel’s research, going back to 1925, reports an average stock market return within a range of 6.5% to 8.5%. (Perhaps that has been changed in the latest update.) The important thing is not to expect a return to the “good ole days”, since The Great Recession. From October of 2007 until March of 2009, the Dow Jones Industrial Average lost more than 50%. That means that the past six years have been a resurgence–a true “Bull Market””–out of the very bottom.
Remember also that that 6.5%-to-8.5% range is for large U. S. company stocks only! So, if your portfolio has cash, bonds, small or foreign company stocks, the overall performance would be proportionately different. Just don’t assume a continuation of double-digit returns, going forward. Rather, expect more normal long-term average results. Lastly, if you cannot be satisfied with this scenario, update your investment goals and review your current portfolio. But, who knows!