Complacency in markets is a problem, especially for those that do not have the horizon to recover a drawdown.
The S&P 500 just experienced back to back 20%+ years, the first time since 1997.
In the past decade most market drawdowns were recovered in less than a year (2022 took closer to 1.5yrs) – significantly faster than the 6 years it took to recover from the 2008 financial crisis. Most investors, young and old, have become accustomed to “V-shaped” drawdowns, which has resulted in an overallocation to risk in most portfolios.
Many forget that the S&P 500 has experienced Lost Decades in the past. While over time markets do go up, investment horizon matters.
Heading into 2025, I agree with bullish sentiment on market return expectations among most firm. I expect markets to be higher, but I also expect to see meaningful volatility along the way. Because of this, it’s critical for investors to avoid complacency — especially after two years of exceptional equity performance.
As I shared with Gregg Greenberg for InvestmentNews recently, “Markets can turn down—and even experience ‘lost decades.’ Diversification across market caps and geographies is essential as returns broaden beyond mega-cap stocks.”
ENDNOTES
Disclosures
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A word on risk
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