No surprises here.
Investors are worried about AI trading and a policy mistake by the Fed. Not very original, but what else do you expect them to say?
I could think of a whole host of other potential risks that could come out of left field, but I think predicting the risks in advance matters a lot less than how you prepare for a wide range of hypothetical landmines.
Being right provides an ego boost, but you won’t get any extra points for being right about what happens next if you don’t position your portfolio accordingly.
The biggest risk for me is that investors’ expectations are incorrect because returns have simply been too high in recent years.
Just look at the S&P 500’s performance each year since 2019:
- 2019 +31.2%
- 2020 +18.0%
- 2021 +28.5%
- 2022 -18.0%
- 2023 +26.1%
- 2024 +24.9%
- 2025 +19.4%
Sure, 2022 was a bad year for the markets, but look how great the returns have been in six of the last seven years.
Even with the Covid crash in 2020 and the bear market in 2022, the S&P 500 is up more than 200% overall since the start of 2019, which is good enough for an annual return of almost 18% per year.
Bull markets may last longer than you think, but we can’t earn above-average returns forever.
Therein lies the greatest risk in 2026… or 2027 or 2028 or some unspecified year in the future.
Ultimately, above-average returns lead to below-average returns. Sometimes the biggest reason for bad returns is that good returns lasted so long.
It’s just hard to know when that will happen or what the trigger will be.
Michael and I talked about the biggest risks in 2026 and much more in this week’s Animal Spirits video:
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Further reading:
Do we need a long bear market?
Here’s what I’ve been reading lately:
Books:
#biggest #risk #wealth #common #sense