Jan 16 • 3 min read
Resetting Market Expectations
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If you’ve been investing for the last ten years, it probably hasn’t felt very hard. Markets recovered quickly. Pullbacks were brief. Long-term discipline was rewarded. In fact, the numbers are so strong that they almost start to feel normal. And that’s where the risk quietly creeps in. Not because something bad is guaranteed to happen next, but because extraordinary periods have a way of resetting our expectations without us realizing it. When returns stay elevated for long enough, it’s easy to assume that’s just how markets work now. That assumption is worth examining as we look ahead. *** Before we dive in, I released two podcast episodes this week to help you get a head start on tax and investment planning for 2026. You can find both on your favorite podcast player below 👇 Tempering ExpectationsThe last decade has been extraordinary for investors. Now that 2025 is officially behind us, take a look at the past ten years of stock market returns:
For those doing the math, the market delivered an average annual total return of nearly 16% per year over the last decade. Considering the market’s long-term historical average is closer to 10%, it’s fair to say the experience of recent years has been nothing short of remarkable. Yes, there were a few bumps along the way. We experienced two brief bear markets and a couple of additional drawdowns that came close. But when you compare them to truly punishing periods like the Tech Bubble or the Great Financial Crisis, these declines were relatively mild. Even the more recent bear markets—2020 and 2022—look far less severe by historical standards. Zooming out, it’s fair to say investors have enjoyed a remarkably smooth ride for quite some time, and that’s despite no shortage of ominous headlines. We’ve endured years of “The End Is Near” narratives, geopolitical scares, inflation fears, rate hikes, recessions-that-never-fully-arrived, and more. Staying invested still required discipline, but the market’s resilience and strong returns have, in many ways, made that discipline easier to maintain. With this extraordinary decade now firmly in the rearview mirror, I want to share two important thoughts as we look ahead. #1 - Expectation ResetGiven how strong recent returns have been, it’s wise to temper expectations and bring them back toward historical norms. That doesn’t mean I’m predicting an imminent market decline. The future is far too uncertain—and markets far too unpredictable—for confident forecasts. But history does suggest that periods like the one we’ve just experienced don’t continue indefinitely. At some point, the market will likely need a breather. That might show up as a year or two of muted returns. Or it could take the form of a more traditional bear market—one that lasts longer than a few months and feels meaningfully uncomfortable. If investing history teaches us anything, it’s that nothing—good or bad—lasts forever. After a decade like the one we’ve just experienced (and arguably longer), expecting more of the same over the next ten years would be optimistic, to say the least. #2 - Preparation Over PredictionThe future will look different from the past... we just don't know how. That's why our focus remains on being prepared rather than trying to predict what's next. One of the most enduring lessons of investing is that the best way to get through sideways or declining markets is to assume they're coming and plan accordingly. As the saying goes, if we stay prepared, we never need to get prepared. For those in retirement distribution mode, preparation doesn't mean selling everything and moving to cash. It means ensuring that near-term spending needs are covered so you're not forced into poor decisions when markets inevitably stumble. For those in wealth accumulation mode, preparation looks different. It means being ready to invest when opportunities arise, knowing that every past market decline looked like an opportunity in hindsight. There's no reason to believe the next one will be any different. Bottom LineStrong returns are easy to get used to. That's precisely why it's worth pausing to remember what's normal, and what isn't. Not to worry. Not to predict. Just to recalibrate. The best investment plans aren't built for the markets we've had. They're built for the ones we might. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |