Your Stock Market Expectations Depend Entirely On When You Started Investing
If you want to be a successful investor, your expectations about the stock market need to be in line with reality. A major problem amongst investors is overenthusiasm. When things are going well, people to tend to take on more risk, margin, leverage, and speculative assets. In a bull market, this behavior may be rewarded. But in the long run, a more balanced portfolio will typically outperform risky portfolios by a longshot. Bear markets, and especially sharp crashes, can absolutely wipe out investors who are leveraged and speculative. A huge factor that contributes to overenthusiasm, is the simple fact that stock market returns are not consistent:
This means that unless you've been investing for literally decades, you do not have a true understanding of what "normal" returns actually are, over time. If you've only ever invested in a bull market, you may falsely believe that these returns are the norm. Likewise, if you've only invested in a bear market, you will be overly pessimistic about investing. As a result, the year you were born strongly influences your stock market expectations
Notice that even on the scale of decades, the difference in return can be vastly different depending on if you started investing at "good" time or not. Younger investors may not have experienced the frenzy and panic involved in market catastrophes. It is precisely these type of frenzies that temper expectations to reasonable levels.
In fact, Warren Buffett keeps newspapers from times of stock market catastrophes on his office wall to remind him that anything can happen. Even the worlds best investor fears being overconfident in his outlook. The true skill of long-term investors is patience, because unlucky timing can mean it will take a very long time dollar-cost averaging to never be at a loss again
For instance, if you started monthly dollar-cost averaging into the S&P 500 in January of 1989, you wouldn’t permanently break even until March of 2009, over 20 years later.
And beat inflation? Not until January 2013.
