Let It Bleed and Earn 12% per Year

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“We all need someone we can bleed on,
And if you want it, you can bleed on me”
– The Rolling Stones

You know the expression “If it bleeds, it leads.” And there’s a lot of bleeding going on right now.

A short list of very serious issues in the world includes…

  • The U.S. debt ceiling
  • War in Ukraine
  • The regional bank crisis
  • China’s aggression toward Taiwan
  • Fear of recession in the U.S.
  • Clowns in Washington on both sides who are focused on making the other party look bad rather than governing.

And, of course, there are many others.

Despite these very real problems, the S&P 500 is up 7.3% year to date. While we’re still below the peak from January 2022, the market is starting to make a comeback, though it doesn’t always feel like it.

Everywhere you look there are reasons to be concerned about the market and your money. Maybe the recent rise in the market is just a rebound in the middle of a bear market. The statistics, though, say this bear market should be close to over.

The past 12 bear markets lasted an average of 14 months. The current bear market is now 14 months long. That’s no guarantee we’re at the finish line, but it suggests we’re closer to the end than the beginning.

From peak to trough, this bear market lost 28%. The average bear market falls 33%.

But here’s what’s important to remember…

The bulls are stronger than the bears.

Bull markets last an average of 60 months and advance 165% during that time. A drop of 33% every five years or so is painful, but not in the context of it occurring after a 165% gain.

Think of it this way… If you invested $10,000 and saw a 165% return over the next five years, you’d have $26,500. Now, if you lost 33% of that over the following 14 months in the next bear market, you’d be left with $17,677.

A more than $8,000 haircut would hurt, no doubt about it. But if you look at the big picture, over the six years and two months, you’d have a nearly 77% return.

Chart: Growth of $10,000 Through an Average Bull and Bear Market
That comes out to a compound annual growth rate of 9.7%. And that’s without dividends. Add another 2% or so for dividends, and you’re generating a return of roughly 12%.

If someone told you that you could make nearly 12% a year for six years, you’d probably grab that deal.

Of course, there are no guarantees in the stock market. Bear markets can run longer and go deeper than the historical averages. But over the long term, the numbers are consistent.

And that’s regardless of what bozo has been in the White House, what wars have started, what scandals have erupted and all of the other calamities that we have to deal with on a regular basis. And there have been many in all of those categories.

Don’t let scary headlines and real problems ruin your ability to earn what should come out to an average of 12% per year if you stick with the market.

There’s always a reason to be worried. The long-term performance of the market is not one of them.

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