Your point of reference can really affect your view!
When digital photography first hit the market there was a lot of changes that occurred extremely fast. From the days of dark rooms, film, and processing specialists, came software with tools and plugins that could immediately fix your image to meet what an intro version of AI thought was right for your desired look. Over saturated images were everywhere. There was even, it seemed, an acceptance to this hyper-adjusted look. Over time photographers seemed to step back from the over-done to find a more acceptable presentation. The real problem is, that so far, no matter how good digital gets, it still cannot see what the human eye can see.
Statisticians have been extracting numbers from data for over 250 years. And, if you have ever sat through a class in Statistics, you can see that you must be very careful, or you can manipulate the numbers to represent whatever bias your viewpoint is already leaning toward.
Recently I was listening to a report about the stock markets current climb. The commentator had a very cautionary perspective of the recent trends; primarily responding to the last three to five years. In his observation, he chose to highlight the growth from the bottom of the market in 2009 until current; a 17.8% annualized rise (specifically referencing S&P 500 values). His point was very intentional, as the historical trends of market growth are more realistically about 11%. This stance in his statistics left him offering what seemed to be a very pessimistic view of potential future returns.
This is where I have a problem: the commentator chose a rather difficult point in the market to reference as a starting point. March of 2009 was the bottom of the markets during the Great Financial Crisis – but not a great place to reference for the overall markets in the last twenty or thirty years. The first decade of the 2000’s was not “normal.” The bottom in 2009 was below the bottom of 2002: something that should be considered when reviewing the valuations of any point in the overall market. Additionally, if you had invested in the S&P 500 in January of 2000, by December of 2010 you would have realized a negative return of 14.4%. Even the S&P500 Total Return only offers an 11.2% total gain for those ten years. These numbers are historically low for an entire decade of investment.
In contrast, with these additional dates in mind, a comparison position would be to take the same returns from the bottom of September 2002 and see that those returns were only 10.42% - slightly below the 11% norm, even staying in through the bottom of 2009. Your reference point really matters.
Finally, a different point of reference might offer a better view of our current conditions. If you invested exactly ten years ago, September of 2016, your annualized return in September of 2026 would be 13.6%. This is inflated compared to the 11% norm, but I feel offers a more realistic comparison.
What’s the point? As with the changes that rushed into the photography world with the new digital images, there are changes occurring in the market today that have wide ranging effects. And, statistics can taint that image just like those initial tools over-saturated the photographs. Choosing a good point of reference, a realistic expectation for your portfolio, and carefully balancing expectations, you should find a more tempered path for your financial planning. Let me know if I can help.