Q4 2021: A Year In Review

by | Jan 10, 2022 | Market Commentary

A year like no other. Wait, didn’t we say that last year? As the books close on 2021, we’re still dealing with a pandemic, the average stock in the U.S is down 24.01%, but the market is at all-time-highs, and U.S. GDP just posted growth of 9.67% year over year – that’s more than $2 trillion in value!

th quarter market review

Forecasting the stock market in 2022

When it comes to the future, expect the unexpected. Trying to know the unknown is extremely tough work. It’s why the “experts” you see on TV do worse than a dart throwing monkey over time. Take the study done by CXO Advisory+ for the period 2005 to 2012 that measured the success of market gurus. Remarkably, they found the cumulative accuracy of 6,582 guru forecasts to be only 46.9%. The average accuracy was only 47.4%.

Most of the time, forecasts miss the mark because we’re not imaginative enough to think up all the crazy things that could happen, assign them a chance of occurring, and then weigh the results. And it seems that wildly unknown events occur every year, disrupting our best laid forecasts. Therefore, the best forecasting method is to guess that 2022 will post returns near to the very long-term average annual rates of return.

We’d expect that a global portfolio* of stocks would generate around a 10% return over the long-term. We make this same guess every year. Too bad this guess is also often wrong.

The uncommon average: Stocks return 10% per year on average

That leaves us thinking. If we know that the 30-year average compounded return for global stocks is 10.9% per year, then how many times has the market actually hit that number?

Zero. That’s right. Zero times.

In fact, for the thirty years ending December 31, 2020, in only two years (1998 and 2005) has the annual return been between 8-12% for a portfolio of global stocks. Since 1929, the S&P 500 has grown at its 10% long-term average only six times in 95 years.

When given an average, always ask for the range!

Annual returns for global stocks have been as high as 44.95% (2003), and as low as -39.85% (2008). On average, though, they’ve earned 10.9%. As an investor, you would only get that average return if you stayed invested in the market during the entire period. The reason for the wide range of outcomes is the volatility that’s created by all the market participants trying to bet on prices, sort out the news, and invest to meet their goals.

Time in the market is more important than timing the market

You have to stay invested to generate long-term returns and build wealth. For the committed, buy and hold does work. Looking at data from the CFA Institute Research Foundation, for the period January 1926 to November 2021, you can see that missing just a few of the best months can really hurt your returns.

market index large and small caps

market index large and small caps

Lengthening the holding period generates more consistent outcomes

Despite volatility, the good news is that if you can stay invested through thick and thin, and you don’t try to time the market, the range of possible outcomes shrinks. In other words, the longer the measurement period, the higher the chance you’ll have a more consistent outcome. 20 years is long-term, though, not 3 years.

outcomes shrink the longer you invest

outcomes shrink the longer you invest


There is, and always will be, market uncertainty. And the future is frustratingly unknowable. However, 2022 is a year to look forward to. There will be new research to explore, new topics to learn, and new adventures to undertake. Right now, there is a stack of journals and papers on our desks that we look forward to reading.

While measuring time in 365-day increments may be somewhat arbitrary, it can also be refreshing. When the calendar turns over, we can start something new.

In 2022, we intend to add to our core competency of investment management. Every day we review objectives, research the markets, test portfolios, and value investments. When we meet, we love helping educate clients on how to invest like the best. Yet, wealth is complicated, and investments are intertwined with risk and taxes. A goal in 2022 is to provide more comprehensive and proactive advice throughout the year to help you invest better, pay less taxes, and protect what’s important.

So, here’s to the New Year, one we hope is full of insight, progress, and prosperity!

* The Global Stock Portfolio is: 35% US Large Cap Stocks (Fama/French US Large Cap Research Index), 35% US Small Cap Stocks (Fama/French US Small Cap Research Index), 10% Developed ex-US Large Cap Stocks (MSCI EAFE Index (gross div.)), 10% Developed ex-US Small Cap Stocks (Dimensional EAFE Small Index), 5% Emerging Market Large Cap Stocks (Fama/French Emerging Markets Index), 5% Emerging Market Small Cap Stocks (Fama/French Emerging Markets Small Cap Index). Data from DFA Returns Web.


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