A lot can happen in one year, and a lot can be forgotten after one year. The US stock market is up 26.41% YTD, and 35.91% over the last 12 months. Without context and perspective, it's easy to get caught up in all that is happening right now. They say investors' have a 3 year time horizon, last year, this year, and next year.
It was only 3 years ago the stock market fell about -25% before bottoming out in October of 2022. And it was 2 years prior to this that the stock market fell about -32% - thats 2 bear markets in 5 years. I think investors have forgotten about this fact, and are getting caught up in the fanfare of the last couple of years.
To put things into perspective, I have plotted out the return for the S&P 500 and have smoothed it out over 3 years. Presently, the 3 year return in the S&P 500 is about 29%. I have also plotted the long-term 3 year average, which is 26.6%.
Although the last 2 years looks and feels out of the ordinary, when you look back into history, you'll realise it's actually quite normal. In fact, what did you think was going to happen following a -25% decline in markets. Perspective is super important.
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