What Are the Odds?

Probabilities are intriguing, and that’s why I’m attracted to investing.  I like math, statistics, and games of chance. My first introduction to averages and percentages was reading the Los Angeles Times while pouring over the baseball box scores. Later in life, my friends and I tested our math skills at the race track and in Las Vegas. The stock market is the ultimate probability machine.

The stock market is in constant flux as investors wager on earnings, revenue, inflation, COVID, interest rates, the Federal Reserve, politics, etc. Daily bets move markets up or down. If news headlines are positive, markets will rise. If they’re negative, markets will fall. Trying to time the market is a fool’s game.

Since 1926, the S&P 500 has produced an average annual return of 10%, and the index has made money 75% of the time. It averaged 12.5% for the past 50 years and generated gains 80% of the time. The average increase was 19%, the average loss was minus 14%. And since 1971, the index has only lost money in consecutive years twice – 1973 to 1974 and 2000 to 2002.[1]

A balanced portfolio of half stocks and half bonds averaged 8.62% per year for the past 95 years. A 50% stock and 50% bond portfolio made money 79% of the time and never lost money over rolling 10-year periods. For the past twenty years, it averaged 7.2% per year. A $10,000 investment in 2000 is now worth more than $40,000.[2]

Will the stock market rise today, tomorrow, or next year? Who knows, but I like my odds!

Life is a school of probability. ~ Walter Bagehot

December 22, 2021

Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor. I give Baylor a 100% probability of winning the Sugar Bowl.


[1] Dimensional Funds 2020 Matrix Bood and Returns Web.

[2] The 50/50 portfolio includes Vanguard’s 500 Index Fund (VFIAX) and Vanguard’s Total Bond Market Index Fund (VBTLX)