Personal Finance

Ask a Fool: What Returns Should I Expect From My Stocks?

Q: I've only been investing for two years, and in that time the stock market has risen by about 30%. Is this normal, or are we due for a fall?

The answer to this question depends on whether we're talking about long or short time periods.

Over a two-year period, a 30% gain is certainly in the realm of what's considered normal. I'll spare you the statistics lesson , but a gain of as much as 45.2% or a loss of as much as 22.8% in any single year are both not statistically unusual. And the market's performance has been outside of these bounds twice in the past 50 years, so even this isn't a guaranteed range.

The point is that over one, two, or even five years, the stock market can be extremely unpredictable. The market could conceivably rise by 30% this year, fall 20% next year, and rise another 40% in 2020.

Having said that, stocks are surprisingly predictable over long periods of time, say 20 years or more. Over period of 20-plus years, the major stock indexes have generated annualized total returns of 9%-11%, depending on the exact time you're looking at. For example, from 1965 through 2017 (53 years), the S&P 500  produced annualized returns of 9.9%.

As a final note, just because one or two years were particularly good or bad doesn't mean that the market is about to reverse course. The S&P 500 has had two nine-year stretches over the past 50 years where the index produced positive total returns every year, including the one we're still experiencing.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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