Investing

Op-ed: Market pundits are predicting average returns for 2022. Here’s why investors should be wary

Charging Bull Statue is seen at the Financial District as snowfall in New York City, United States on December 16, 2020.
Tayfun Coskun | Anadolu Agency | Getty Images

Investors are about to be besieged with financial soothsayers predicting returns for 2022.  

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

We believe that mean reversion exists, especially in finance, and would also expect lower returns longer term, but we will leave predictions for 2022’s returns to “the experts.”

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

The average return of the market is rarely earned in any one year. What is typical is a wide range 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. Her areas of expertise include all facets of asset management with a focus on capital markets, alternatives and investor behavior.

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