Note from the CIO: The Bumpy Road to the Market’s Long-Term Average

Please note the publish date of this blog. Financial information, market conditions, and other data mentioned in this post may no longer be accurate or relevant.

Once in a rare while, there comes a year in the economy and markets that serves as a master class in the principles of successful long-term, goal-focused, planning-driven investing. Last year, 2020, was one of them. The year reinforced some timeless investment lessons:

  • Dramatic market-moving events come out of nowhere
  • It will always feel “different this time” because the circumstances are different each time
  • Experts often get it wrong and the media will report it as the end of economic life as we know it
  • Significant declines in stocks are common and temporary
  • Neither the decline nor the recovery can be consistently timed, nor can the economy be consistently forecasted
  • The equity market tends to recover long before the economic picture clears
  • The highest-probability strategy is therefore to ride out each crisis, or better yet buy more shares when they are down (through rules-based rebalancing)
  • In other words, don’t sell into major market panics; if at all possible, buy into them

On average, the S&P 500 Index has declined by about a third every five years or so since the end of WWII. But in those 75 years, the S&P Index has gone from about 15 to 3,756. The lesson is that, at least historically, the declines have been temporary and long-term progress has always reasserted itself.

Yet, your investment experience will inevitably be bumpy. Though the S&P 500’s long-term return has compounded at an average 10%, in only six of the past 95 years has its annual return been within two percentage points of 10%. Yearly returns have ranged as high as +54% and as low as -43%. Note, however, that there have been 70 years of positive annual returns and only 25 negative years.

Over longer periods of time, bumps in the road on the journey toward our goals tend to smooth out. As investment advisors and financial planners, we think in decades at a time, including retirement which averages three decades. This chart [1] shows the history of 30-year retirements using the S&P 500’s compounded average annual return over those golden years:

The History of Retirements

For 30-year retirements that began in 1926 through 1991, the S&P 500 returned a compounded annual average of no less than 8.5% and as high as 13.7%, averaging 11.2% over those sixty-six 30-year periods. I’ve told my colleagues that I don’t ever plan to retire, but this almost makes me look forward to it!

Looking Ahead

Looking forward to 2021, a big question on the minds of many investors is, “Why do I own anything but those five big tech stocks which have done so much better than the S&P 500?” 

The problem with this thinking is it assumes past out-performance will continue into the future. This is usually based on a good story about the company, but that same information is known by the entire marketplace so at any given point it is already baked into the high price of the company. This thinking is also usually based on a speculation that what has been hot will continue to be hot, what behavioral economists call “recency bias.” 

History is not on the side of investing in just the big-name companies. As this incredible illustration [2] from Dimensional Fund Advisors shows, the largest companies change significantly and unpredictably from decade to decade, and half of the current big ten companies are new (and therefore relatively unproven) members of the club. 

Largest 10 US Stocks at the Start of Each Decade

There is no way to construct a reliable plan from this chart, whether for a lifetime investor or just a 30-year retirement. By contrast, the predictability illustrated in the first chart is something we can make a plan around with a high likelihood of success. Acting on that plan (instead of reacting to markets/events/news) through all the fears and fads of a retirement or an investing lifetime helps us avoid sudden emotional, and costly, decisions. So, let 2021 be the year we take three deep breaths, reassess where we are at, rediscover our most important goals, and update our financial and investment plan to align to our deepest values.



Abacus Wealth Partners, LLC (Abacus) is an SEC registered investment adviser with its principal place of business in the State of California. Abacus may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. This brochure is limited to the dissemination of general information pertaining to its investment advisory services. Any subsequent, direct communication by Abacus with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Abacus, please contact us or refer to the Investment Adviser Public Disclosure web site (

This is not an offer to sell any type of security, and there is no investment currently available through Abacus. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell this security. This newsletter contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Information was based on sources we deem to be reliable, but we make no representations as to its accuracy. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

For additional information about Abacus, including fees and services, send for our disclosure brochure as set forth on Form ADV from us using the contact information herein. Please read the disclosure brochure carefully before you invest or send money.

[1] Chart 1: History of Retirements

Performance for periods greater than one year are annualized unless specified otherwise. Selection of funds, indices and time periods presented chosen by advisor. Indices are not available for direct investment and performance does not reflect expenses of an actual portfolio. Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. To obtain performance data current to the most recent month-end access our website at Average annual total returns include reinvestment of dividends and capital gains. Mutual funds distributed by DFA Securities LLC.

Prior to April 1, 2002, the following reimbursement fees may have been charged to purchasers of the respective portfolios: International Small Company Portfolio 0.675%; Continental Small Company Portfolio 1.00%; Japanese Small Company Portfolio 0.50%; Pacific Rim Small Company Portfolio 1.00%; International Small Cap Value Portfolio 0.675%; Emerging Markets Small Cap Portfolio 1.00%; Emerging Markets Value Portfolio 0.50%; Emerging Markets Portfolio 0.50%. Prior to April 1998, the reimbursement fee for the International Small Company Portfolio was 0.70% and the reimbursement fee for the International Small Cap Value Portfolio was 0.70%. Prior to July 1995, the reimbursement fees were as follows: International Small Cap Value Portfolio 1.00%; Continental Small Company Portfolio 1.50%; Japanese Small Company Portfolio 1.00%; Pacific Rim Small Company Portfolio 1.50%; UK Small Company Portfolio 1.50%; Emerging Markets Portfolio 1.50%. Returns for these portfolios are presented net of these reimbursement fees.

All reimbursement fees are based on the net asset value of the shares purchased. The standardized returns presented reflect deduction, where applicable, of the reimbursement fees for the portfolios.  Non-standardized performance data reported by Dimensional Fund Advisors LP. does not reflect deduction of the reimbursement fee. If reflected, the fee would reduce the performance quoted.

Model Constructions: Model portfolios are constructed in the Returns Program using past data of funds or indices as of a specific date, assigning weights to those funds or indices to equal 100%. The model portfolios constructed are hypothetical and are not representative of actual portfolios. Their performance is hypothetical, for illustrative purposes only and is subject to limitations. Unless otherwise specified by the user, the hypothetical performance is gross of fees and is rebalanced monthly. The performance presented does not replace an advisor’s actual model portfolio performance. Past and hypothetical results are no guarantee of future results. The model performance is based on model/back tested asset allocations. The performance was achieved with the retroactive application of a model designed with the benefit of hindsight; it does not represent actual investment performance. Back-tested model performance is hypothetical (does not reflect trading in actual portfolios) and may not reflect the impact that economic and market factors may have had on advisor’s decision-making if the advisor were actually managing client money. Material is not to be considered a recommendation or investment advice to buy or sell any security. 

Dimensional Indices: These indices have been retrospectively calculated by Dimensional Fund Advisors LP and did not exist prior to their index inceptions dates. Accordingly, results shown during the periods prior to each index’s index inception date do not represent actual returns of the index. 

Principal Risks: The principal risks of investing in the Dimensional funds may include one or more of the following: market risk, small companies risk, risk of concentrating in the real estate industry, foreign securities and currencies risk, emerging markets risk, banking concentration risk, foreign government debt risk, interest rate risk, risk of investing for inflation protection, credit risk, risk of municipal securities, derivatives risk, securities lending risk call risk, liquidity risk, income risk, value investment risk, investment strategy risk, and/or fund of funds risk. To more fully understand the risks related to an investment in the funds, investors should carefully read each fund’s prospectus. Investments in foreign issuers are subject to certain considerations that are not associated with investments in US public companies. Investments of the International Equity, Emerging Markets Equity and the Global Fixed Income Portfolios will be denominated in foreign currencies.  Changes in the relative values of these foreign currencies and the US dollar, therefore, will affect the value of investments in the Portfolios.  However, the Global Fixed Income Portfolios may utilize forward currency contracts to attempt to protect against uncertainty in the level of future foreign currency rates (if applicable), to hedge against fluctuations in currency exchange rates or to transfer balances from one currency to another. Foreign securities prices may decline or fluctuate because of: (a) economic or political actions of foreign governments, and/or (b) less regulated or liquid securities markets.

[2] Chart 2: Largest 10 US Stocks at the Start of Each Decade

Source: Dimensional, using data from CRSP and Compustat. Includes all US common stocks. Largest stocks identified at the end of the calendar year preceding the respective decade by sorting eligible US stocks on market capitalization using data provided by the Center for Research in Security Prices, University of Chicago.


What’s your financial archetype?

Simplify your life with a plan

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.