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Giving Thanks to the Market

Whether you are 25 years old or 65 years old, or somewhere in between, we all have a reason to be thankful this year. Why? The U.S. stock market is up 18% year to date.

It is impossible to say where the market will end on December 31, but we should all be satisfied with an 18% return this Thanksgiving. The average annual return of the S&P 500 since 1928 is “only” 9.5%. In other words, the U.S. stock market’s return in 2017 is nearly twice as high as the annual average.

To be fair, though, we are not exactly in rarified air when it comes to annual returns.

Since 1928 the S&P 500 has delivered a return of 18% or more in 43% of the years. That’s an extraordinary feat when you stop to think about it. Compare that statistic with another: Since 1928 the S&P 500 has ended the year down more than 5% just 21% of the time. Those aren’t bad odds for making money over time.

Actually, this year’s return is impressive for another reason. It has come on the back of an extraordinary string of returns since 2009 – a period in which the S&P 500 has not experienced a single losing year. Check out the annual returns:

2009 – 25.9%

2010 – 14.8%

2011 – 2.1%

2012 – 15.9%

2013 – 32.2%

2014 – 13.5%

2015 – 1.4%

2016 – 11.7%

This could be the ninth year in a row that the U.S. market ends in the black. Only one other time in history has there been a similar streak, from 1991 through 1999.

When market returns seem automatic and market losses are a distant memory it’s easy to get a big head. People start to think investing is easy, to believe it’s not emotionally difficult at times. As a result, investors end up taking risks they ultimately cannot bear.

But don’t let complacency infect your thinking or your portfolio.

We would all do well to remember that an 18% return, while not unheard of, is a great gift from the market. It does not mean we are investing geniuses. It does not mean we have a hot hand. It simply means we have good reason to be grateful.

Eventually the stock market will let us down. Our good fortune will come to an end. Checking our account balances will produce anxiety rather than glee. Unfortunately, no one knows when that will be.

Perhaps this Thanksgiving we should pass on a piece of pumpkin pie and opt instead for a sizable slice of humble pie. At some point, we will be thankful we did.

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