Average annual volatile stock market

To make the most of a market like the current one, smart long-term investors need strong stomachs and nerves of steel.

The start of has brought with it a stomach-churning descent, with a promise of more of the same: The first rule, as always, is not to panic. The biggest mistake investors make in a decline is to sell in fear and then wait too long to get back in, missing the bounce up. Your worst mistake, based on history, would be to sell indiscriminately. But your second-worst mistake would be to freeze up. Don't miss this opportunity to look ahead. Here are five moves to make now.

It may be painful, but investors need to adopt a realistic picture of what their returns in the public markets are likely to be over the next decade or two. Most people think equities are likely to return less, so if you want to meet your goals, you either need to save more or take more on risk. Over the last 20 years, between and , equity investors in the U. Bond investors saw an annual average return of 7. But in investing, history doesn't predict the past.

Aliaga-Diaz, a principal economist with the Malvern, Pennsylvania-based Vanguard Group, said a more realistic expectation is 6 percent to 8 percent for equities over the next couple of decades, and 4 percent to 6 percent for a balanced portfolio of stocks and bonds. Most assets are priced in relation to assets considered "risk free": With the yield on year Treasuries at only about 2 percent, compared with 5 percent historically, investors have a low base to build on.

Burt Malkiel, Princeton economist, author of the classic Random Walk Down Wall Street and the chief investment officer of online financial advisor Wealthfront, pointed to the CAPE, the cyclically adjusted price-to-earnings ratio, which is about 40 percent correlated to future equities returns, he said.

Many people don't open the envelopes or look into their investment accounts in a down cycle. That's a mistake, because you could be missing opportunities to shift assets around to better suit your own risk tolerance and meet your goals. If you freak out when you look inside the envelope and stay scared, chances are good you have too much in equities.

If you look inside and find you can look toward the future, maybe you have the scope to take on more risk. But the first step is to get a realistic picture of how your portfolio is performing in a down market. Rebalancing back to your original vision for your portfolio forces you to buy low and sell high. If some of the asset classes in your account, like bonds or REITS , are performing better than equities, now may be the time to sell them and buy relatively lower-priced equity mutual funds, ETFs or stocks.

Investing small sums regularly over time increases returns in a volatile market, Malkiel said.

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His analysis of dollar cost averaging during the last decade, —, showed that someone who invested regularly versus putting in a lump sum at the beginning of the decade had a return 1 percent higher for each dollar invested. Tax-loss harvesting replaces an investment that has lost value with one that is similar, so that you keep your portfolio the same — but generates a loss that you can write off on your taxes. Investment advisors often offer tax-loss harvesting to their wealthier clients, and online investment services Wealthfront and Betterment offer daily harvesting to all the investors on their platforms.

How much tax-loss harvesting is worth to you depends on your tax rate. Emerging markets stocks are getting hammered by China's slowdown, and many experts think Americans are underexposed to international stocks for the long term.

That's a recipe for bargains, if you have the stomach to shift your asset allocation to one that is somewhat more volatile. And I think that's a mistake. Aliaga-Diaz agreed, pointing out that if you look at the total market capitalization of the world, the U. If one of your goals is to match the market, you might need to increase your international allocation. Vanguard begins with a recommendation for typical investors of, on the equity side, 40 percent international and 60 percent U.

You can use a similar time-based rationale for investing in long-term bonds.

Observations: Average Stock Market Return Since 19xx

Longer-term bonds have higher yields but higher risks, because markets bet that it gets harder to predict the future the longer out you go, said Aliaga-Diaz.

Another benefit is that they will provide ballast for equities in your portfolio. Overall, in a lower-return environment, the way to increase returns is to "take more risk," he said.

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Register Log In Profile Email Preferences PRO Sign Out. Consider saving more and taking more risk. Time to protect your portfolio from volatility. Look at your account. Rebalance, invest regularly and harvest losses. Economic doomsayer sees plenty more volatility.

How Much Does the Stock Market Return? » Money Boss

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Average Stock Market Return: Where Does 7% Come From? - The Simple Dollar

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