Most Wall Street forecasts for the S&P 500 in 2025 predict a 9-12% gain.
Historically, annual returns rarely match the long-term average of 9.8%, showing significant variability.
The likelihood of an “average” year is slim; investors should focus on long-term gains.
Over the past month or two the Wall Street gurus have firmed up their forecasts for where the S&P 500 will finish 2025.
The majority have a year-end estimate of between 6400 or 6600, which implies a gain of 9-12% this year.
That’s closeto the long-term average return from US shares, which is (somewhat ironically) why I think most strategists will turn out to be wide of the mark.
Since 1900, US shares have returned 9.8% per annum (including dividends). That means an investor has, on average, doubled their money every 7.4 years.
Not bad at all.
That’s a recipe for wealth generation and an excellent way to ensure your capital grows more than inflation (which has been just below 3% per annum over that period).
However, the market rarely delivers an annual return anywhere near that long-term average.
It’s usually some way above or below that, and thankfully the former occurs much more than the latter.
Let me dig into the data and show you what I mean.
As a share investor there’s no question you’ll do well over the long term. You just need to make peace with the fact that year in year out, anything can happen. Photo / Supplied
We know the average return since 1900 is almost bang on 10%, so we can probably take a couple of per cent either side of that and a good portion of the returns will fall into that zone, right?
Actually, not so much.
Of all those 125 years, there were just four where the return was between 8% and 12%, despite the average over the entire period being very close to 10%.
Just four times.
Every other year has been outside of that range, in many cases by quite a wide margin.
There have been 32 years when the market was down, including seven examples of it being down more than 10% and eight where it was more than 20% lower.
Predictably, the worst two years of all were 1931 (when US shares fell 39.3%) and 2008 (when the market slumped 37.0% during the GFC).
It’s not all bad though, far from it.
The market has gone up most of the time, with 93 positive years out of 125, making for a very reasonable hit rate of 74%.
There have also been 47 years where US shares rose more than 20% (including last year and the one before that), which is more than a third of the time.
That includes 16 years where the gains were more than 30%, and four where the market rallied more than 40%.
Here’s the thing – while the average sharemarket return has been about 10%, the gain in any given year is rarely close to that average.
There’s huge variance from one year to the next.
When you hear people like me espouse the attractive returns shares will generate over the long term, we’re not exaggerating at all.
It’s just that these returns don’t come in a consistent manner.
As a share investor there’s no question you’ll do well over the long term. You just need to make peace with the fact that year in year out, anything can happen.
This variability is the price we pay for those above-average returns.
The market goes up in three out of four years, and it’s six times more likely to experience a 20% rise (that’s happened on 47 occasions since 1900) than a 20% decline (we’ve seen that just eight times).
The typical Wall Street strategist has taken the safe option and picked 2025 to be an “average” year.
The chances of that happening are extremely slim, so they’re likely to be incorrect.
I suspect they all know that, and resent being asked to come up with something as trivial as a 12-month target.
Forget about those forecasts.
Stay the course, understand (and accept) the risk/return trade-off, and keep your eye on the long game.
If you can do that, history is very much on your side and you’ll succeed as a share investor.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
