The Stock Market – It’s Similar to Ripples in Water

Key Takeaways

  • The stock market’s movements can be compared to ripples in water when you drop a pebble in: big at first, but evening out over time.
  • Looking at 20-year cycles, versus performance over one year, can provide a better perspective of the stock market.
  • A blended 50/50 portfolio of stocks and bonds can help keep you in the market in the long term.

Have you ever observed a rock or a pebble being thrown into a pond? At first, the waves that result are fairly large, but eventually, they subside and the water flattens out. The stock market shares some similarities, in that it can have a really big wave, either up or down – but over time, it evens out.

This particular chart, showing 20-year cycles going back to 1950, demonstrates these waves and the subsequent evening out:


Take a look at the far left section, showing one year. The first year shows stocks at -39% in one year and +47% in another year. Bonds are -8% and +43% in total returns. A 50/50 portfolio, which tends to be what most people have, is at -15% and +33%.

Now go to the far right of the chart and look at the 20-year rolling section. Here you’ll see much smaller ripples – stocks range from +6% to +17%. A 50/50 portfolio is +5% to +14%. If you only look at these numbers, you may be tempted to stick with stocks alone. However, look back at that first year. That volatility scares a lot of people and they jump at the wrong time, selling when they shouldn’t.

This is why a blended portfolio, closer to that 50/50 mix, with returns that aren’t that far off from the 100% stocks scenario, keeps people in the market for the long term. It helps you make it through those bad waves that happen from time to time.

So if you’re saving for retirement, keep these 20-year cycles in mind. Don’t think about that first year. You’ll get a decent rate of return if these historical trends hold up over time. Until next time, enjoy.


Gary Klaben is in our Glenview, IL office and serves our clients who are now located all over the country. He has over 30 years of experience and is the author of Changing the Conversation, Wealth of Everything and co-author of The Business BattlefieldWhether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.

Learn more about TransformingWealth™ , our proprietary approach designed to get your arms around the big picture, so you can make informed financial decisions. Ask Gary about Coyle’s TransformingWealth Preview Meeting and schedule a complimentary consultation and start living the Good Life Managed Well™.
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All information is from sources deemed reliable, but no warranty is made to its accuracy or completeness.   This material is being provided for informational or educational purposes only, and does not take into account the investment objectives or financial situation of any client or prospective client.  The information is not intended as investment advice, and is not a recommendation to buy, sell, or invest in any particular investment or market segment.  Those seeking information regarding their particular investment needs should contact a financial professional.  Coyle, our employees, or our clients, may or may not be invested in any individual securities or market segments discussed in this material.  The opinions expressed were current as of the date of posting, but are subject to change without notice due to market, political, or economic conditions. No chart, graph, or formula can, in and of itself, be used to determine which securities to buy or sell, or when to buy or sell them.  Past performance is not indicative of future results, and investing in securities entails risk of loss, including loss of principal, that investors must be prepared to bear.

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