When market returns have been stable and trending upwards for an extended period of time, we often start to adjust our expectations. It is important that we keep in mind we are being compensated for the risk that is taken when invested in the stock market. As the word “risk” would imply, it is important to remember there is also a downside to investing in the stock market.
It is never a matter of “if” we will see the market go down, it is always a matter of “when” and that is okay. If the market only went up, we would expect risk-free returns similar to your high-interest bank account. The important point here is to expect and be prepared for ups and downs in the stock market. We should only allocate investment money to stocks when our time horizon is long enough to ride out a bear market. Given a long enough time horizon, the market has provided remarkably consistent long-term returns. However, there is no such thing as a “normal” calendar year return.