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Investors should be wary of forecasting average returns in 2022


The supporting bull statue is seen in the Financial District as a snowfall in New York City, the United States, December 16, 2020.

Tayfun Coskun | Anadolu Agency | Getty Images

Investors are about to be besieged by financial diviners who forecast returns for 2022.

I guess after the more than 16% annualized gains of the S&P 500 over the past 3, 5, and 10 years, most predict that the markets will come back more in line with the long-term “average” return of 8% to 10%. The Nasdaq and S&P 500 have historically been in their top decile of 10-year returns and have annualized around 20% and 16%, respectively.

We believe the mean reversion exists, particularly in financials, and we would also expect lower returns in the longer term, but we will leave the forecast for 2022 returns to the “experts”.

Since 1930, the S&P 500 has averaged 9.79% per year. But is this average return typical? You might be surprised at the answer. During those 90 one-year periods, the S&P 500 returned between 8% and 12% only four times. It’s less than 5% of the time. Yet year after year, analysts tell investors to expect the average.

The average market return is seldom obtained over the course of a year. What is typical is a wide array of returns that will challenge investors in bad years and reward them in good ones. Expect volatility, expect a new set of worries the market will have to obsess over and overcome, but don’t expect 10%.

Bryn Talkington is a Managing Partner of Requisite Capital Management. She is also a trader on “Halftime Report” and a CNBC contributor. His areas of expertise include all facets of asset management with a focus on capital markets, alternatives and investor behavior.


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