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Sound Advice: February 24, 2021

Pullbacks “R” Us

The long-term trend of the stock market is up.  Period.  To reinforce that statement, take a look at the closing levels of the Dow Jones Industrial Average over the last 100 years:

The average annual rate of return over this period was 10.5%.  That was before inflation, which averaged about 3.1% a year.  The real return, net of inflation, was 7.4% a year.

The advance has not been straight up.  Quite the contrary.  A study by JPMorgan (see below) found that although the market advanced in three out of four years, there was an average intra-year drop of 14.3% during the period measured (1980-2021). At current Dow levels, that would be a reduction of 4,500 points.

Nearly half of the pullbacks were less than 10%; five were more than 30%.  In all cases, stocks recovered and continued to climb.

Over extended periods of time, equities have delivered the highest average annual rate of return of all asset classes.  Along the way, however, there have been substantial interim retrenchments.  In some cases, the weakness reflected underlying economic setbacks.  More often, though, these hiccups resulted from changes in investor psychology.

These are bumps along the way, not roadblocks.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883



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