Announcer:
4 Your money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by Nate Kreinbrink, Financial Planner at NelsonCorp Wealth Management. Welcome back, Nate.
Nate Kreinbrink:
Thanks again for having me.
Brandy Auterson-Hurst:
So, the stock market has done well the last few years, but this year’s off to a rough start. How should investors?
Nate Kreinbrink:
You’re exactly right. The past few years have been relatively strong. However, we’ve seen some turbulence in the market so far, year to date. Now, when this happens, I think it’s important that we just take a step back and look at the big picture. I think we have a chart here that goes into this a bit more. Now, what we’re looking at here is the S&P 500, rolling 5-year and 10-year annualized returns going back to the 1960s. The blue line there at the top shows how the market performed over the prior 5 years at any point, while the red line does the same thing, but looks at the 10 years. Now, at the bottom there, that white line tracks the gap or the spread between the two. When we see this spike, it means that the short-term returns are running much hotter than what the long-term ones are.
Now, today, if you look at it, the 5-year return is about 13%, while the 10-year is slightly over 9%, which is more typical for the long-term returns. So, this kind of gap usually means that the market’s been running relatively hot. And historically, when we’ve seen this setup there, returns tend to cool off a little bit. When we’ve seen this in the past, the average return for the following year has been close to that 2.5%, which is well below the usual 8% to 9% range that we see.
Brandy Auterson-Hurst:
Okay, so is this something investors should be worried about?
Nate Kreinbrink:
Not necessarily. So, a pullback after a strong run is actually normal and can be healthy. Now, we’ve seen double-digit returns in back-to-back years, so a slower stretch wouldn’t necessarily be all that surprising. The biggest thing though is just to manage expectations. When the shorter-term gains outpace the longer trend, markets usually take a breather, which is where we find ourselves now.
Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.