Stock Market Outlook - the next 5-10 years
By Stephen Sutherland, author of Liquid Millionaire.Posted in the Category of ISAS, SIPPS, Investing, Stock Market, Performance, Wealth Building on 18th December, 2011.
Tags: bull market, institutional investors, isaco, liquid millionaire, market health, market indexes, nasdaq composite, russell indexes, s & p 600, stock market, stock market summary.
Stock Market Outlook - the next 5-10 years
Today I thought I’d share with you stock market outlook for the next five to ten years. This chart below highlights two sideways trending patterns.
This chart above highlights two sideways trending patterns.
The first pattern on the left is a period from 1970 to 1980 where the market made zero price progress. The second pattern on the right is a pattern the market has been running over the last decade
In both periods, no price progress was made. If you take another look at the period 1970 to 1980, after that sideways movement, what happened?
The answer is the market formed a long-term uptrend and grew by 8750% The rule is, when markets move sideways for long periods, sooner or later, they have to resume their upward advances. After a period of extended rest, the market will always go higher.
History shows the returns enjoyed by investors who can overcome their instinct to seek safe haven in difficult times could be significantly higher in the long-term.
When you look at history, you find that extended periods of poor performance have almost always led to periods of above-average performance.
As investment in equities should be viewed as a medium to long-term savings vehicle, we looked at returns over ten year periods, as illustrated in this table below.
The Barclays study shows that since 1899, there have been 17 lost decades (10 year periods of negative aggregate performance) with an average annual return of -2.9%.
This includes the most recent decade (to the end of 2008) where UK equities suffered average annual returns of -1.5%.
Yes, that’s poor performance but far the worst decade on record.
However, notice that each of these decades immediately following a lost decade has proved positive average annual total returns, with an average of +10.8% per annum for these ensuing good decades.
Could the decade following 2008 continue this trend?
This data suggests there is a high probability that over the next decade, we are likely to see above average performance and possibly a stock market boom period.
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