“Steady” Returns Don’t Exist in the Stock Market

One of the best ways to help yourself handle the ups and downs of the stock market is to have realistic expectations before investing. And that means understanding that you can’t achieve market returns without market volatility.

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You’ll frequently hear this advice: “Don’t try to get rich quickly in the stock market. It’s a fool’s errand. Instead, settle to build your wealth slowly and steadily.” The first part of that counsel is unquestionably sound. The second part might appear wise, but it is impossible to execute. Equities don’t move up slowly and steadily.

They don’t emulate the tortoise in Aesop’s famous fable, but rather a drunken version of the hare. Stock markets race ahead, fall back, sit still, collapse again, grow exponentially, flatten out, shoot up, crash down, and generally drive investors batty. Yes, over many years, equities as a group will probably post a solid rate of return, but steady is not an appropriate adjective to describe their likely journey there.

Annual returns do not congregate closely around the market’s long-term average. In other words, extreme years do not occur on occasion, they occur regularly. For example, the Standard & Poor’s 500, the most widely used index of U.S. stocks, has been either up more than 20 percent or down in just under two thirds of the years from 26 to 2024.

Another way to look at that is that the S&P 500 has risen between zero and 20 percent in only about one-third of the years in that period. That’s hard to believe. Even financial professionals are surprised when I share those statistics with them. Stocks have much to offer to the true long-term investor.

But you can’t achieve market returns without market volatility being along for the ride. There’s no way around that. One of the best ways to help yourself handle the ups and downs is to have realistic expectations before investing. There’s no such thing as normal annual returns in the stock market.

Steady, not even close.