Arguments for future returns based on where an asset’s price came from are easy to shoot down. But they are persistent among the investor class because we all anchor to something. In this case, investors anchor to the low point of the bear market and view everything that’s happened subsequently through that lens.
But something interesting happens when you broaden out the time horizon and focus on rolling returns as opposed to calendar-year returns, which are pedestrian and meaningless in real life. We know that stock market returns are mean-reverting in the long run, even if we don’t know how far they’ll be stretched in one direction or another over the short run. And when we look at returns over the last ten year period and the last fifteen year period – way more meaningful stretches of time for retirement investing – we see that returns have actually been quite underwhelming relative to all historic ten and fifteen year periods.
Three slides from Barry’s discussion below make this point in very clear and concise way:
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