New years bring new things.
This year is no different.
We are still learning to adjust to the innovation of artificial intelligence and what that might mean for technology and society.
Whether you voted for the Presidential ticket or not, there is a new administration coming to the White House.
Market outlooks from big banks and investment firms have recently arrived and are forecasting what stocks and interest rates may do in 2025.
You may have some novel opinions of your own about what will happen this year on Wall Street.
But for now, let’s set those aside. Out with the new, and in with the old.
Let’s intentionally remember.
What can we learn from the last quarter of a century about investing from the chart from JP Morgan?
Lesson number one: an average investment return of 10% occurs in a context of hardly ever hitting the average in a calendar year.
Missing out on years with significant gains can be a big problem for your investment portfolio. The last few years have been spectacular for the stock market soaring more than 20% each year.
One put it bluntly, “I’m always fully invested. It’s a great feeling to be caught with your pants up.”
This doesn't mean you should necessarily be fully invested. Each investor has their own risk tolerance and financial goals, and significant market downturns have occurred. However, it's important to remember that inflation can erode the value of uninvested cash if the market continues to climb.
Lesson number two: it is hard to be a stock-picker and beat the S&P 500 index.
For example, though the roughly 500 biggest stocks in America returned over 20% the last few years, there were well over 100 stocks in each of those years that were down 5% or more.
Furthermore, in that 25-year span the average number of stocks that were down 5% or more is about 1/3 of stocks that compose the overall index.
Stock picking is hard.
Lesson number three: Invest for decades, not 365 days.
To illustrate this, look again at the above chart. At the end of this year, one more column will be added. Remember those who have told us not to overestimate what can be done in a year and underestimate what can be done over decades.
Relearn these old lessons this year before another one flies by.