Embracing the Chaos
"My investments are doing awesome!" exclaimed one of my friends. I was having drinks with an old friend when he brought up the topic of investing. I'm always interested in context when these types of comments are made, so I inquired. "Why do you say that?"
He shared that he had just recently met with his financial advisor. Over the last two calendar years, his investments were up about 12% each year, and he's on track to do that again this year.
I don't have a great poker face, so he could immediately see the look of disgust on my face. "If the market is supposed to get 8%-10% per year, my last two years have been pretty awesome! There's no disputing that."
Here's the truth. In the two years he just reported to me, 2023 and 2024, the U.S. stock market was up 26% and 25%, respectively. With that context in mind, yes, his 12% performances were absolute trash.
But what about 8-10%!?!? Isn't that what we should use to gauge performance? Yes....and no. Let's play a little game. In the last 155 individual years, how many years did the stock market finish in the positive 8%-10% range?
Three times. Three times out of 155 years. 1912, 1916, and 1993. That's it. Those are the only three years in U.S. history that actually finished in the 8%-10% range. With that being said, the market is up an average of 9.2% per year over the past 155 years (and 10.3% per year over the last 100 years).
This is one of the most important concepts we need to understand. It's not about trying to get 8%-10% on any given year. Rather, it's about meeting the market embracing the chaos......which is what eventually brings us to 8%-10%. As an example of this concept, here are a few fun facts about the last 155 years:
As already mentioned, the stock market has achieved 8%-10% only three times.
The market has finished +20% or better 49 times, which is roughly once every 3 years for one-and-a-half centuries.
The market has finished -20% or worse 8 times.
It's a wild ride! If 2025 ended today, the market would have achieved an average annual return of 14.5% over the last decade. However, look how messy it's been:
2016: +11.8%
2017: +21.5%
2018: -4.3%
2019: +31.1%
2020: +18.1%
2021: +28.5%
2022: -18.1%
2023: +26.0%
2024: +24.8%
2025: +16.9%
See, wild ride! The only way for us to get our desired long-term results is to experience the full weight of the chaos on the upside, endure the inevitable chaos on the downside, and know that it will average out to something beautiful.
However you handle your investments, whether on your own, through your work's retirement plans, or via a financial advisor, don't measure your short-term returns against some arbitrary target. Instead, we should endeavor to meet the market and embrace the chaos, for better or worse. It will rarely look like 8%-10% in the short-term, but if we're willing to embrace the chaos, we'll eventually be rewarded handsomely for our discipline and patience.
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