Investing & Retirement

Are We In The Best Stock Market Period…Ever?

Question: Will today’s young investors ever see a better stock market than during the past 12 years?

Answer: Maybe. The past 12 years have been good, not great, by historical standards. But, should they really care?!

Let’s look at the data.

The Evidence

Today’s question was posed earlier this week by the excellent Ben Carlson (here’s his opinion).

The past 12 years have seen 13% annual average returns (after adjusting for inflation and reinvesting dividends). That’s S&P 500 data, which I’ll use for the rest of the article.

13% is excellent compared to the historical average of 7% annual returns. Compounded over 12 years, 13% annual returns lead to a total real return of 333%. That’s compared to the historical average of 125% (which is 7% compounded over 12 years).

Yes, the past 12 years have been good!

But let’s examine decade-by-decade data. Take a look at the chart below:

S&P 500 returns (dividends reinvested, adjusted for inflation) – Annual Returns Reported By Decade

The 2010s were good at 11.2% per year. But not great. Four other decades were better.

Let’s add three bookend years (2009, 2020, and 2021) to our 2010s data. The returns then increase to the aforementioned 13% per year. That’s still not as good as the 1990s, the 1950s, or the 1920s.

So these past 12 years have been good…but not great! (in my subjective opinion)

Want an example of great data? From April 1980 to August 2000—a 20+ year span—the S&P 500 averaged 13.4% annual returns. That’s 20 years of better returns than our current 12-year bull run.

Here’s another comparison. The past 12 years’ returns are in the 90th percentile for all historical 12-year periods (thanks Robert Shiller for the data).

On one hand, I’m cherry-picking the data (just like the 20 year period above). I’m starting in the low of 2009. I’m ending in the high of 2021. But it goes to show: we’ve had a good run. Potentially a very good run.

But…will we see something better than the current run in again our lifetimes?

Before I give my final answer, we have another important question: should we even care if we’ll see another good bull run again?!

But Should We Care?!

Let’s say we never see a period this good again. In fact, let’s pretend the market will drop 10% a year for the next 3 years. Is that near-term drop good or bad?

The answer depends on who you ask.

Someone already in retirement will say, “10% drops will be bad – I’ll ‘lose’ a lot of money!” Granted, they only lose if they sell. But they’re in retirement, so they probably are selling some of their investments to create their annual income.

But millennials will say, “Those 10% drops are…pretty good, right?! My dollars will be able to buy more shares because the prices are lower. I want this to happen.”

The past 12 years of rising markets have been good if you already have money invested. But they’ve been comparatively bad if you’re looking to start your investing career.

And what do we know about young people? They have just started their investing careers! They don’t have much money. They aren’t investing much.

Young people will benefit most when this recent hot market eventually cools off. And yes – it will cool off.

Bull runs mean different things to different people. That’s important to realize.

The Music Hasn’t Stopped

The music hasn’t stopped and the market is still rising. Investors continue to dance. And similarly, I’m dancing around the answer to today’s question.

Will millennials ever see a stock market as good as the past 12 years?!?!

Answer: I don’t know.

Ugh. What a buzzkill!!! But if anyone claims they do know, you should run (!!!) in the other direction. They’re either uninformed (an ignoramus) or deliberately wrong (a snake oil salesman). Avoid both.

Running away from some scary market predictors.

Instead, here’s what you need to know (especially if you’re a millennial looking to invest in the future):

  • Understand that our current bull run is good—not great. That’s what the first half of this article illustrates.
  • Know that timing the market is a fool’s errand. Don’t convince yourself that we’re “at the top” and that you should sell your investments. Continue to dollar cost average into the market. That is your smartest choice, even at all-time market highs.
  • Know that a correction or bear market or crash is coming. I repeat: it is coming. Not if, but when. And nobody knows when, hence the “don’t time the market” spiel. The more you understand that fact, the better off you’ll be.
  • Finally – when that bear crash comes, it might actually be good for you.

Further reading:

The Market Crash is Coming…Eventually

Thank you for reading! If you enjoyed this article and want to read more, I’d suggest checking out my Archive or Subscribing to get future articles emailed to your inbox.

-Jesse

P.S. – If you enjoy podcasts, check out the Best Interest Podcast! It’s getting some rave reviews!

About Jesse Cramer

Jesse Cramer created The Best Interest to explain personal finance and investing in simple terms. His writing has been featured by CNBC, MSN, The Motley Fool, and other national publications. He resides in Rochester, NY with his girlfriend and their dog. Follow him on Twitter: @BestInterest_JC
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