Stock Market History Is On Your Side… But Does It Really Matter In The Long-Run

Written by the William Allan team · Reviewed by Jason Crawshaw, CPA · 2025-07-19

With the turn of the calendar, it is standard practice for the world’s numerous investment professionals to roll out their thoughts for all things financial, leading to the big prize… a stock market prediction. Since the stock market ends the year in plus territory more than 75% of the time, it doesn’t take a rocket scientist, or a 5-year-old, to be right most of the time. “Um, Daddy… I choose upsies.” simple, right?

Nonetheless, this is an emotional moment for many folks, especially coming off a down year… the horror! And when we get the worst year for the stock market since the GFC (Great Financial Crisis) … lookout. Anxiety, excitement, consternation, panic, etc., you name the emotion, and I am sure someone is feeling it. All driven by the uncertainty of what the year ahead holds. Fortunately, I am here to share a glimmer of hope!

To the innocent bystander, it must be crazy enough when you read that, on average, the stock market finishes positive three out of every four years. As surprising as it sounds, the stock market rarely experiences back-to-back down years.

The market has experienced at least two down years in a row only twice in the past 72 years… less than 3% of the time. Regardless of what your market expert predicts, this must put a smile on your face. (Sidenote: There is sound economic reason stocks typically head north, but that is a post for another day).

As a stock market investor, history is genuinely on your side. But that’s just half the title of the post. The second half… Does it matter in the long run? If we are investors with a long-term horizon, will a negative 2023 ruin your retirement plan(s)? Of course, not. And brace yourself… you would be better off with another ho-hum year. How do I know? We’ve lived it and are way better off for it.

Let me introduce (or reacquaint) you with The Lost Decade (And Some) …

From March 2000 to July 2012, the stock market (as measured by the S&P 500 Index) essentially started and ended at the same level. Effectively, this period was lost… right? Not necessarily…

At last check, the S&P 500 Index has an average annual return of over 11%. Remember that this index was established in 1957… that’s 65 years ago! So, for 12+ years, we believe we did not get our 11% annual return. Based on history, our money should have more than doubled during this period… but it did not.

Before we start shedding tears, this is a good thing. Maybe even a great thing! Let me explain… You see, as investors, we invest continuously. For many, this is via a bi-weekly 401(k) payroll deduction. If this is you, your contributions are being made across a long stretch of uneven prices. While buying at different levels, overall, your contributions are being invested on the cheap! And ultimately, you will be rewarded for your patience… most likely beyond your imagination.

The proof is in the behavior. Investors who continued contributing during the so-called lost decade were often in a stronger position than the index headline alone would suggest.

In the subsequent period, from mid-2012 through 2021, many long-term investors experienced much stronger returns, helping explain how a flat stretch can still set the stage for meaningful growth later on.

Because contributions continued during the down period, more capital was in place before the subsequent period of growth. A 16% annualized return results in your money doubling every 4.5 years. In many cases, following the “lost decade,” portfolios were able to double more than once. Let that sink in for a minute!

As we state repeatedly, investing is a long-term exercise. As history demonstrates, the odds are we don’t see many back-to-back down years for the stock market. So, for those who live and die with the daily stock ticker on the squawk box, this should give you solace. For those who want to build meaningful wealth over an extended period… I look forward to seeing you down the road.

Here’s to a great 2023 (irrespective of what Mr. Market does)!

Note: Nothing in this letter should be considered investment advice, research, or an invitation to buy or sell any securities.

This commentary is for informational purposes only and is not investment, tax, or legal advice. All investing involves risk, including the possible loss of principal, and past performance does not guarantee future results.