Tempering Expectations

A family member I rarely hear from reached out over the weekend. He asked about some stocks I’d never heard of that a friend had recommended. Those stocks, of course, had doubled or tripled in a short period of time.

Whenever this happens, I roll my eyes. We humans understand the relationship with price and value when it comes to everything but stocks.

Bananas on sale? Everyone wants them.

Bananas priced five times higher than usual? Not a chance we want them.

Stocks on sale? Nobody wants them.

Stocks up fivefold? Everyone wants them.

We devolve into Gollum chasing the Ring when the markets go on a tear. I wish we acted more like him when they get hammered

From January 2023 through August 2025, the S&P 500 Index rose nearly 64%, an annualized rate of about 22%. That’s more than double its long-term average.

But if you pull data from just a year earlier, from January 2022 through August 2025, the S&P 500 is up about 44%, an annualized rate of roughly 10.6%, which is right in line with history.

I use this* site for my S&P 500 data, and I treat it as a proxy for “the market” because the index has deep, reliable data going back to 1926. Client portfolios are not just the S&P 500.

In nearly any 30-year window (long enough to save for retirement or live through one), the S&P 500 has averaged about 10% per year. The price for that return? On average: a 16% intra-year drop every single year, and a 35% drop every five or six years. No one knows when, why, or how long those drops will last, only that they happen.

Why bring this up? Because since early 2023 the S&P 500 has grown at more than double its long-term average. The reason the average looks normal when you include 2022? The market dropped almost 20% that year.

How do we get back to the average?

• The market eventually takes it on the chin (most likely).
• The market grows at a low rate for a long stretch (less likely).

Either way, no one knows when. And this current boom could last way longer than anyone expects.

• Best course of action right now? Nothing. Keep doing what you’re doing.
• Best course of action if the market takes it on the chin? Nothing. Keep doing what you’re doing.
• Best course of action if the market grows slowly for a few years? Nothing. Keep doing what you’re doing.

Just don’t be like Gollum. His story doesn’t end well. (Even if the Tolkien rights-holders keep milking Andy Serkis and the character for every last penny.)

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