“You don’t have to see the whole staircase, just take the first step.”
-Martin Luther King Jr.
Here’s what you need to know this week:
- Stocks post strong gains in 2024
- A review of stocks’ performance over the first 25 years of this century
- A quick look ahead to 2025
A Look Back
2024 is officially in the books! Stocks enjoyed a strong year of gains across the board: The S&P 500 gained 24.01%, the NASDAQ gained 30.78% and the Dow Jones gained a respectable 12.8%. However, the year was not without its challenges:
As you can see on this chart of the S&P 500, we experienced four sharp drawdowns throughout the year as well as a handful of smaller dips. This year was a great example of the quote “volatility is the price of admission to the wonderous theme park called the stock market” from Ben Carlson. As you will see below, this type of volatility is typical for the stock market, but patience rewards investors who can weather the ups and downs.
Twenty Five Years of Gains
With 2024 officially behind us, we have now completed exactly one quarter of the 21st century. How do you think stocks have performed over that time period? Think for a second to come up with your answer before scrolling down:
This is the 25-year chart of the S&P 500 Total Return index, which includes the dividends paid by S&P 500 companies and assumes the dividends are reinvested. You can see that the chart begins by falling due to the dot com bubble burst; a few years of gains, then the 2008 financial crisis, steady gains through most of the 2010s, the COVID crash and the 2022 inflation selloff, and then the gains over the past two years.
Put this all together and you get a total return of 538.76%[1]. In other words, if you had invested $100,000 into the S&P 500 on January 1st, 2000, reinvested your dividends and never withdrew a cent, your investment would now be worth $638,760. Pretty incredible right? The more incredible detail to me is that if you average out this gain over 25 years, you get an average annual return of just 7.7%. Even more incredibly, this is belowthe S&P’s average annual gain over the last century (10.06%)[2].
Also, this example assumes one lump sum investment and then zero subsequent investments over 25 years. If you had invested an additional $10,000 per year on top of the initial $100,000 then your total at the end of 25 years would be $1,338,634. Pretty amazing!
The last quarter century has seen plenty of volatility and three of the six largest drawdowns in history and has still delivered outstanding returns. This is the perfect example that you don’t need to be a genius or hit home runs to become wealthy, you just need to be patient. Amazon founder Jeff Bezos once asked investing legend Warren Buffett why no one copies his strategy, and Buffett replied, “Because no one wants to get rich slowly”[3].
A Look Ahead
No one knows what stocks will do in 2025, but we can look ahead to some major economic themes for the coming year. The most obvious theme is former President Trump retaking the White House in just under two weeks. Trump’s first term was mostly positive for both the economy and the stock market, with the S&P 500 delivering a 63% gain during his tenure [4]. Of course, his administration will have to contend with different challenges such as elevated inflation, multiple international wars and potentially negotiating new trade agreements with other nations.
The Federal Reserve will continue to loom large as they deliberate on interest rate policy. Inflation (meaning the rate of inflation) has fallen greatly over the last two years and is close to the Fed’s target range, but prices themselves are still greatly elevated compared to three years ago. The labor market has also cooled (although still growing), and the Fed wants to avoid driving us into an unnecessary recession.
Each year presents its own risks and opportunities. The most important thing to remember is to stay diligent, focus on your long-term goals and tune out the day-to-day noise and the rest will take care of itself. If you don’t believe me, just check that 25-year chart again.
What Else
- Former President Jimmy Carter passed away on December 29th at the age of 100; President Biden announced that Thursday, January 9th will be a national day of mourning and the stock market will be closed in honor of the former president
- Speaker of the House Mike Johnson narrowly won reelection 218-215
- Canadian Prime Minister Justin Trudeau announced that he will resign as PM, triggering a nationwide election
- Israel and Hamas appear close to a hostage exchange as part of a ceasefire agreement
- The College Football Playoff Semifinals take place this Thursday and Friday
What We’re Reading
In a suburb just north of Dallas, a company called Cosm has debuted a new type of venue for sports and other live events. The venue (also named Cosm) features an enormous curved screen similar to a planetarium, as well as rows of bleacher seats and high definition video to make visitors feel like they are actually in a stadium. So far this venue has only been used for NFL games and only has one location, but Cosm has new locations and events in their sights; click below to learn more:
What’s Happening Downtown
The Oklahoma City Museum of Art has announced a new program called Access for All, which will allow anyone to visit for free on the second Sunday of each month. The first Access for All day is this Sunday, January 12th; while tickets are free, you must still reserve them ahead of time to avoid overcrowding. To learn more and reserve your free tickets, click the link below:
To read more from our blog, click here
Written by: Kane Ogle, CFP®
Steve Beck, Amber Eduvigen, CFP®, Kane Ogle, CFP®, Cale Olbert, CFP®, Brett Valentine, Brandon Ingerson, Jenni Hess
Sources: [1] Crossing Wall Street [2] Investopedia [3] NASDAQ [4] MacroTrends