20% Returns Are Not Normal

Investors have come to expect double-digit returns, and recent market performance has reinforced that belief. Historically, however, the long-term average annual return of the S&P 500 (SPY) has been closer to 8–10%. In recent years, markets have delivered average gains in the 20% range, an exceptional period rather than the norm. This prolonged surge has led many investors to overlook the risks that come with elevated valuations and speculative enthusiasm. With the rapid rise of AI-driven optimism, the market is now pricing companies at levels rarely seen in history. In fact, current valuation trends resemble only one other period in recent memory: the dot-com bubble of 2000.