As we start a new year, and even a new decade, it may be an appropriate time to reflect on your investments.

As we now know, the prior decade was an outstanding time to be a stock investor, especially if the majority of your investments were in US stocks as opposed to international stocks; the latter also did well over the prior decade, although a little more so over the first half of the decade than the second.

Are there any lessons that can be learned by examining the behavior of stocks over such extended periods, such as over the previous five years?

As I have continually emphasized on my website, no one, no matter how expert, can consistently predict correctly the future performance of stocks, or the factors that seem to influence whether they go up or down. But we do know that returns show that, in the past, stocks have gone up each year about two-thirds of the time. This makes an investment in stocks at the beginning of any upcoming year to have a better than average chance of turning out positively. When you multiply the two-thirds odds over five to 10 years, investing in stocks, more than likely (but never guaranteed), will turn out to be a good choice. Of course, this means that one-third of the time, you may expect to see losses over the short term.

While you should therefore disregard any predictions of where stocks will go over the next year (except while acknowledging the two-thirds chance they will rise to some degree), it might be the case that if one focuses on successfully predicting the longer term, say five years, using multi-year intervals of past performance might turn out to actually predict multi-year future performance. If so, long-term investors might be afforded a much better idea of what to expect if they continue to hold their stock positions beyond a single year going forward, or if they decide to reduce their positions.

The data I present below analyzes US and international stock returns going back to 1993 up through the end of 2019 in order to see if there is a relationship between the prior five years of returns and the subsequent five years.

Surprising Results Over Previous Decades Show a Strong Pattern

It is pretty common knowledge that past returns cannot predict what the next 12 months will be. There are…

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