Over long enough time periods, the stock market has always performed well. There are plenty of bumps and bruises along the way, but the overall trend has always been up and to the right. In fact, the worst total return in history over a 20-year period was +54%. The worst 30-year return was +854%. We’ve all seen images like the one below that show this never-ending march up.
Even when markets are high, as many people believe them to be now, the future expected returns from the stock market are still positive. I think this is an important distinction because I’ve talked to many people who think that because the market is high a crash must be inevitable and thus future returns will be negative. If the market is in fact too high right now (which we won’t know for another 5-10 years when we can look back), that means that future returns will be lower than historical averages—but not negative. Though I don’t put much value in people’s opinions who try to estimate future stock market returns, almost all of the estimates I’ve seen are in the low to mid-single digits—call it 4%. 4% isn’t great, but it’s a hell of a lot better than earning 0% in cash.