So you’ve heard that stocks earn 10% per year over the long run, right? It’s like the holy grail of investment lore. Earning 10% each year in exchange for accepting the market fluctuation of owning stocks sounds great, doesn’t it? That’s a return worth paying the price of admission.

The problem is it’s an investment myth – a unicorn that’s more elusive than you think. No one seemingly ever mentions how the stock market gets there, sidestepping this small but crucial point. The truth is markets usually take the road less traveled.

The Exception Not the Norm

Pop Quiz: Since 1926, how often do you think stocks have hit that sweet spot within two percentage points of the market’s long-term average, in the 8-12% range? Honestly, I would have guessed around 25 times (or 1/4 of all years), which seems reasonable given the long-term average return of 10% and a 4% margin of error. The truth is far, far less. Since 1926, it’s happened just six times. You read that right – only six times in nearly a century!¹

Once in a Blue Moon…or Solar Eclipse

Spotting an 8-12% return is like catching a solar eclipse – you’d be lucky to see it once a decade. Ironically enough, if you look at the last decade, it happened exactly once in 2016 when stocks returned 9.5%. Returns since then have been a rollercoaster of highs and lows that look nothing like the long-term average:

2017	19%
2018	-6%
2019	29%
2020	16%
2021	27%
2022	-19%
2023	24%

And yet, an interesting plot twist – the average return over the past decade? A familiar 11%, almost mirroring that long-term average. 

Emotional Math – It’s all About Expectations

One of my favorite formulas in life is Expectations – Reality = Emotions. When our reality differs from our expectations, we tend to get upset, frustrated, and anxious – a bad recipe for investors. So investors need to understand that earning that average yearly return is more unicorn than workhorse. Brace yourself for the wild ride like we’ve seen the past decade, because most years won’t even resemble that long-term average! 

The Long Game – Your Ticket to Success

Want to hit those average stock returns? Then it’s time to ditch the investment myth, embrace the scenic route, and take the road less traveled. History’s lesson is clear: to earn the long-term average, you’ve got to be committed for the long haul.

Castle Quote: “A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.” – Charlie Munger

Source:¹https://my.dimensional.com/dfsmedia/f27f1cc5b9674653938eb84ff8006d8c/32992-source/the-bumpy-road-to-the-markets-long-term-average-us.pdf