Life is Lumpy – Investment Returns Too

Life is Lumpy – Investment Returns Too

Life comes at you fast and in big lumps–investment returns are no exception.

Stock market history going back to 1926 reflects only a few years where actual annual returns are within 2% of the market’s long-term average of about 10%. Investment returns are very lumpy.

Because of this, if you miss even a few good days, your realized returns might be substantially less than the market average. Trying to time the market can extract a steep price.


Over the past 20 years, there were about 5000 trading days in the stock market. If you missed the best 20 days, your returns were about 6% per year less than the market for the period. If you missed the best 50 days, you had substantially negative returns for the 20-year timeframe (Source: JP Morgan).

The moral of the story is to stay invested through both good and bad market conditions. As a practical matter, this means ignoring the minute-to-minute financial “news flashes” that occupy so much of the media each day.

I read an interesting interview recently with Professor Eugene Fama where he said, “The nature of the stock market is you get a lot of the return in very short periods of time. So, you basically don’t want to be out for short periods of time, where you may be missing a good part of the return.”


You have to “unlearn” errant market timing lore in order to achieve better long-term returns. That is, you have to acknowledge long-term market history and avoid emotional based short-termism.

Emotions are what push investors to exit the market in an attempt to run toward safety. The irony is this actually creates more fragility and vulnerability. Getting out of the market during a turbulent period makes you feel better, but the real financial pain of foregoing returns creates the actual damage.

In reality, most people carry around a suitcase filled with misinformation and misconceptions about markets and returns. As a result, many investors dramatically underperform as they chase one hot investing fad after another.

The answer is to let markets work for you. Having a solid belief and behavior system in place provides a good foundation.  Start there. Ready for a real conversation?