So how can investors better prepare for markets that are impossible to accurately predict?

One way to help frame the future is by looking to the past for answers to see the range of outcomes you can expect when investing in the stock market.

From 1928 to 2021, the annual return for the U.S. stock market is 9.9% per year. But the return investors experience year in and year out is rarely close to the long-term averages.

Over the past 94 years, the U.S. stock market has experienced calendar year returns in the range of 0% to 10% just 15% of the time. That means 85% of the time, the return in a given year tends to be much higher or lower than the long-term average.

For instance, in nearly half of all calendar year periods, the stock market has either been up 20% or better or down 10% or worse. The norm for the stock market is actually big up years or nasty down years most of the time. Seven out of every 10 years has seen double-digit moves, either to the upside or downside. You're far more likely to experience a big gain or a big loss than a single-digit gain or loss in the stock market.

Each year Wall Street strategists like to predict that year-end price target for the S&P 500. Using history as a guide should lead them to predict gains most of the time. In roughly three out of every four years since 1928, the stock market is up in a given year.

But much like the average annual return figures, there is no pattern from year to year on this number.

From 1928 to 1941, the stock market was down in nine out of 14 years. That includes a run during the Great Depression when the market was down in five out of six years from 1929 to 1934. Then from 1947 to 1961, stocks were up 13 out of 15 years. In the 18-year stretch from 1982 to 1999, the stock market finished down just once, a 3% loss in 1990. Then from 2000 to 2002, it was down three years in a row. We are currently in a period that has seen just two down years over the past 19 (in 2008 and 2018).

Of course, these numbers are just how the stock market has finished out the year. Even during those periods of gain after gain, there were downturns on the way to those positive returns. Although the average annual return is close to 10% in the stock market, the average peak-to-trough drawdown since 1928 is a loss of nearly 17% during the calendar year.

Even when the stock market rises in a given year, losses along the way are normal. If we were to take only the years when the stock market rises 10% or more (which happens around 60% of the time), you would still see an average drawdown of 11% on the path to those gains. Double-digit drawdowns have occurred in two-thirds of all calendar years going back to 1928, regardless of how the year finishes.

Now you could also assume a good year in the stock market should reasonably be followed by a bad year or vice versa. But you would be wrong. The linkage between one year's performance and the next is hard to find.

Stocks tend to go up in a given year whether they were up the year before or down the year before. And even when stocks were up big (as defined by a gain of 10% or more) or down big (as defined by a loss of –10% or worse), they tend to rise the next year, on average.

But what about a year like 2021, when the S&P 500 was up nearly 29%? How does the stock market do after a banner year like that?

Surprisingly well.

The average return following a year in which the U.S. stock market was up 20% or more the prior year is 9.7%. Stocks were higher 70% of the time after gaining 20% or more. The average return following a year in which the U.S. stock market was up 30% or more the prior year is 9.9% with stocks rising two-thirds of the time the next year.

For many investors, it can feel inevitable that stocks should fall after experiencing big returns. While that is always possible, history shows further gains are more likely than a huge crash.

Certain securities mentioned in the article may be currently held, have been held, or may be held in the future in the author’s personal portfolio or a portfolio managed by Ritholtz Wealth Management.