It’s hard to find good financial news lately, so today I thought I would take a step back and look at a longer period of time. It’s easy to get get caught up in the day-to-day headlines, but if you are going to reach financial independence and retire early (FIRE), you have to be focused on the big picture.
The chart below shows the S&P 500 annualized returns for six different periods of time. In the short-term, year-to-date returns are down a brutal -20.1%. They are better, but a still ugly -12.3% from this day last year. Still, the chart shows that we have had a solid run of growth over the last 2, 3, 5, and 10 years.
That’s what we invest for – the longer term – right?
I’m not dumb enough to tell you what’s going to happen in the future, but I’m sure glad to see that over the last 10 years we’ve gotten an 10.5% annualized return rate. This doesn’t even include the value of dividends (right, Klaus?)! I early retired more than 6 years ago, so it’s terrific that we’ve had such a nice run early in my goof-off years.
Coincidently, the average 10.5% annual increase in the S&P 500 is spot-on with it’s average growth rate back to the 1920s.
I know it’s easy to think about how much better we would be if the market had held it’s highs from the end of 2021, but that’s water under the bridge. (The 10-year annualized return would have been 13.0%, if you are really interested).
Still, all we can do at this point is hope that things start to turn the corner soon … with better returns and lower inflation. If we can get through this rough patch, maybe we’ll see another 10 years of solid returns. Here’s hoping.
Are you finding it hard to focus on the long-view lately?
Image Credit: Pixabay
MrFireStation 
It’s important to keep the big picture long term view in mind. While I know this and haven’t changed any of my investment plans based on the current market. The short-term downturn is not easy to totally dismiss. I am not FIRE’d yet so buying at a discount is a great way to look at it. However, watching all the money I put in this year plus more disappear every time I look at my portfolio bugs me. I ended up deleting the app on my phone that tracked my portfolio as it was too easy to get into the habit of checking daily. Just limiting my news intake and trying to only check in monthly on the portfolio and even then just trying to focus on share count, that number hasn’t been going down!
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Yes – focus on # of shares! That’s the best approach right now. I know you’ve mentioned it before, but how close are you to your FIRE escape? If you are close, you need to sit on some cash as a buffer. (Yes, I know inflation makes that hard right now).
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Still a couple of years away. I agree a cash buffer adds a lot of flexibility.
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I read an article over the weekend that the S&P had its worst half year since 1970. Bonds are not a safe haven either, because they just had the worst half year since 1842.
How do I keep my sanity during times like these? Despite the market value of my holdings being down slightly, my dividend based income has actually increased about 10% due dividend increases and reinvestment. The dividends that are being reinvested are locking in a higher current yield, which is good for growing income.
As a parting comment, my wife and I did quite a bit of driving around the LA area over the weekend and the traffic seemed the lightest that it has been in over 36 years living here. The empty freeways tell me people are hurting financially to the point they are driving less.
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+10% for the dividend king! Great job in this tough market.
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