MW Why you shouldn't fall in love with the S&P 500

By Brett Arends

What Wall Street doesn't tell you about the long-term return on your investments

Bull and bear markets come and go in long waves, but you would be hard-pressed to get that cautionary news from the average Wall Street stock salesman.

The chart above tells a simple story. The data are publicly available, the math is simple, the conclusions undeniable. But they often lie obscured behind talk about "long-term averages."

(You can do almost anything with averages. Elon Musk and your Aunt Sally have an "average" net worth of about $300 billion each, but that probably won't help her.)

Have U.S. stocks - as measured by the top 500 stocks - produced "average" returns of about 6% a year above inflation over the long term? Yes.

But is that the end of the story? No.

Going back to the 1920s, it's clear that the overwhelming bulk of those long-term gains came during a few periods when stock prices and earnings went through the roof: the 1950s and 1960s, the late 1980s and the 1990s, and since about 2012. For the rest of the time, the returns were abysmal. Someone who put their money into the S&P 500 SPX at the end of 1928 and came back 20 years later found that they had barely made any money at all. And that's before deducting taxes and fees.

Someone who invested at the end of 1968 made no money over the next 16 years. Someone who invested at the end of 1999 actually lost money over the next 13 years.

Again, this is before deducting costs.

One of the ominous lessons is that the real danger to ordinary investors may not be a short-term "crash" but a long period of dismal returns.

None of this means a bear market or a "lost decade" is imminent anytime soon. It might not happen for five years, or it might have already started - nobody will know until afterwards. Artificial "superintelligence" might kill us all before it even happens.

The key questions are whether most investors understand these risks, and are prepared for it. You'd be hard-pressed to argue that either is the case.

The average 401(k) investor has about 75% of their portfolio in stocks, according to the most recent report from Vanguard.

Half of them have 87% or more in the stock market. The weightings in equities are highest among investors earning the least money, possibly because they feel most in need of rolling the dice.

The risks are always much greater than they seem at times like today, after a long period of stellar returns.

Samantha Prince, pensions expert at Penn State Dickinson Law, points out in a new paper how heavily the costs of stock-market "volatility" - that lovely Wall Street euphemism - fall on those often least able to bear them.

"During times of economic volatility, 401(k)s shift from nest eggs solely used for retirement to lifelines to cover living expenses," she told me. This means stock-market volatility is an especially big risk for the most economically vulnerable investors. It doesn't just threaten money they may need in a few decades' time, but money they need now.

They may be forced to sell at low points, locking in losses and missing out on future gains, not because they want to but because they need to, Prince said. And even if they are able to hold on, the psychological and emotional stress is dangerous. (Stock-market volatility is bad for people's emotional health, and typically causes an increase in antidepressant prescriptions and visits to the therapist, according to Jacob Falkencrone at Saxon Bank.)

The psychological point is much more important than investment strategists like to admit. The late Peter Bernstein, one of the great financial thinkers in history, said the psychology of investors was an essential part of the process.

"Many people pride themselves on being 'long-term investors,' but acting deliberately when prices are bouncing around is not so easy," he wrote. "When stocks are blasting skyward, even the most steadfast can be sucked into the updraft. When they are cascading downward, keeping one's cool is almost impossible."

He added: "I know I could not have been so calm through depressions, inflations, banking and currency crises, wars and political disruptions."

It was for this reason that Bernstein recommended the so-called 60/40 portfolio, meaning 60% stocks and 40% bonds. It would, he argued, help keep you invested in the stock market during the tough times.

Wall Street veterans will tell you that after several years of a booming bull market, every ordinary investor thinks they're a stock-picking genius and that they have a very high tolerance for risk. It always happens, partly because - as the chart above reminds us - these things come in long waves. (Peter Lynch, the legendary fund manager at Fidelity, said that at the end of a bull market, ordinary people started telling him which stocks to buy.)

Then a bear market arrives, and many discover that neither is the case after all.

-Brett Arends

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February 19, 2026 13:09 ET (18:09 GMT)

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