What You Need to Know about Averages, Part Two
Since 1970, investing in global stocks gave positive returns 74% of the time. However, the individual experience can be starkly different from the long-term average. It depends on the regime of market that you were in.
Markets can be broadly separated into secular bull¹ markets and secular bear¹ markets. The word secular in economics is used to describe trends that occur or persist over long periods of time.
The frequency of positive returns for global stocks since 1970 has fluctuated between a low of 56% to a high of 89%. Returns have a tendency to be higher in secular bull markets as positive returns happen more often than negative returns (81% of the time). Contrast that with secular bear markets where positive returns only occur 61% of the time.
The University of Chicago’s Center for Research in Security Prices (CRSP) keeps a comprehensive record of the performance of all listed securities in the U.S. since 1926. This database can help us get a longer term perspective seeing that the U.S. has gone through 3 sets of secular regimes and is currently in its fourth secular bull which began in 2009.
The frequency of positive returns investing in U.S. securities since 1926 fluctuates between a low of 31% to as high as 100%. The long term average of positive returns is similar to global stocks, giving positive returns 73% of the time .
On average, during secular bull markets, U.S. stocks spend the large majority of the time deliver positive returns, at an astounding 91%!
The percentage of positive returns regresses to a coin-flip at 50% during secular bear markets.
The good news is that secular bull markets tend to last longer in length (thankfully) as compared to secular bear markets. This is intuitive if we consider that economic expansion tend to last 6 times as long as economic contractions.
By diversifying your portfolio into global markets, you are likely to enjoy a smoother ride through secular bull and bear markets. Even secular bear markets delivered positive returns 61% of the time. Our Risk Matrix which is an objective quantitative model helps to identify warning signs of impending market weakness, allowing us to take action to preserve capital during stressful periods. It also signals to us bullish periods where we must stay invested and increase exposure to capture returns.
Rely on an interest aligned wealth manager like GYC to look past the averages and help you capture returns and grow your wealth.
¹A secular bull market is characterised by a period in which stock prices rise at an above-average rate for an extended period and suffer only relatively short intervening declines. Conversely, a secular bear market is an extended period of flat or declining stock prices.