Ten Years to Nowhere?

I’ve wanted to write about this for a while, and reader Carson sent me over the edge after asking my thoughts on this issue.

The headline floating around goes something like this:

“No equity returns for 10 years.”

It’s a daunting headline, plain ugly.

Let’s assume you have a million at the end of this year. Here’s what that would mean for you.

• 2025 Portfolio Value: $1,000,000
• 2035 Portfolio Value: $1,000,000

You work, sacrifice, invest, and all you get over the next 10 years is nothing.

Well, that’s not really how it would play out.

They Never Make It Easy

My beef with the financial media is that they’ll pull these quotes from analysts, executives, or portfolio managers on Wall Street, put a bit of spin on them, and publish them to you.

You subsequently correctly question your strategy and/or get stressed based on the fear-mongering.

I see these articles, think of you, and say, “Well, that may be true, but that’s not how it actually plays out in reality.”

When people talk about future returns in the stock market, it’s helpful to remember that they are referencing the day they are writing as the starting point for their analysis.

If you can do some basic math and know a bit about the stock market’s past, you know that the starting point of your analysis is everything.

Here are two different sets of three-year returns, just with different starting points in the S&P 500.

• January 28, 2022 – January 28, 2025 – Total Return: 36.13%
• January 28, 2019 – January 28, 2022 – Total Return: 67.63%

Pick a different starting point, and you’ll get wildly different outcomes.

And today, with markets coming off of two back-to-back fantastic years, valuations are historically high.

This means it’s the perfect time to bring on the naysayers, like the “10 years of no returns” camp of people.

And guess what?

They might be right.

But they might be wrong.

Let’s keep pushing through the noise.

Features, Not Bugs

If the markets are flat, here’s what the S&P 500 returns won’t look like.

• 2025 – 0%
• 2026 – 0%
• 2027 – 0%
• 2028 – 0%
• 2029 – 0%
• And so on…

This is much more reflective of what could happen if markets are flat:

• 2025 – (-12%)
• 2026 – 23%
• 2027 – (-18%)
• 2028 – (-5%)
• 2029 – 15%
• And so on…

The markets would fluctuate as they always do, and most likely, over this proposed 10 years of nowhere, we’d have one or two extra negative years.

As I said above, large-scale statements such as “returns will be lower for a super long period” can be accurate and have happened.

They are rare but look no further than 2000-2010.

A brutal time period in market history.

While some think market drawdowns are bugs in our financial system, they are a feature.

They yield opportunities to buy great investments at great prices.

You just need to ensure that happens.

How to Combat Bad Markets

You have several arrows in your quiver to combat bad markets.

Everyone has the same set of arrows in their quiver.

You need to know how to use them best.

Here they are. Take your time reading through these:

1. Diversification > Concentration – Diversification is one of the only free lunches on Wall Street. Every portfolio sits on a continuum of diversification and concentration. Overly concentrated portfolios are a great way to get rich—and a great way to destroy wealth quickly. Diversification in bad markets is your friend cause it lets you do point #2.
2. Rebalancing – Diversification means you get to rebalance. Rebalancing means selling certain assets and buying others that align with your strategic asset allocation. Rebalancing is key. When to rebalance is what separates the good from the great. Remember this:
   • Good investors know to buy.
   • Great investors know what to buy.
   • Legends know when to sell.
   You need to have a plan for rebalancing and then stick to the plan.
3. Cash Flow – Here’s the ultimate hedge against bad markets: your ability to invest through them, buying more assets along the way, in both good markets and bad. If you can buy assets with cash flow when times are tough, you’ll live out what legendary investor Shelby Davis said best, “You make most of your money in a bear market. You just don’t realize it at the time.”

If the market goes sideways for 10 years, it doesn’t mean your portfolio will do the same.

This is how I have guided clients for the last decade when we’ve experienced bad markets.

Closing Thought

I’m not going to beat around the bush and say stocks will continue their meteoric rise.

Valuations are stretched.

The Journal just had a great piece on the equity premium going negative.

And these lofty valuations can lead to flat or down markets for prolonged periods.

But—you can still crush it.

You do that by using the three points above and practicing the basics of financial planning over time.

You put in the work, and the market will reward you in its time.

Where people go wrong investing is they underestimate the risk they are taking in their portfolios without understanding it.

I’ve seen it, and I’ve lived it.

I respect risk—I don’t avoid it.

Risk is not bad. It just needs to be understood.