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Indisputable facts regarding historical stock market returns

M

Mister T

Diamond Member
I have been hearing alot of misinformation regarding historical stock market returns and wanted to set the record straight. I just sat down at a bloomberg terminal and downloaded historical stock market returns since 1928.

Just in case anyone asks, my calculations obviously take into account the great cash of 1929.

Here is what I found:

Return of the market over the past 73 years = 8%

Worst 10-year period (1965-1975) ==> -0.8%
Worst 20-year period (1929-1949) ==> 0.9%
Worst 30-year period (1928-1958) ==> 5.65%

Best 10-year period (1989-1999) ==> 16.9%
Best 20-year period (1980-2000) ==> 14.7%
Best 30-year period (1970-2000) ==> 10.9%

Post WWII return (1946-2000) ==> 9.8%

In another thread, I posed the question of whether it would be feasible to borrow money for 30 years, invest it, and beat your cost of borrowing. Several pepole claimed that anyone doing such a play would be crazy given the inherent risk in the stock market. Well, obviously this depends upon one's cost of borrowing, tax rates, and your tolerance for risk - it is not an absolute for anyone.

Again, my intent is not to advise anyone on a particular course of action, rather it is to inform people about what has happened historically. It is up to you to decide what you think will happen in the future.


 
Interesting.... the worst 10 year period wasnt in the 30's? u checked every single year since 1928 for 10,20,and 30 year returns?
 
Not to crap a thread, but what happens when you throw capital gains into that mix?

Isn't cap gains tax upwards of 30%? After you lob off 1/3 of that 10%, you are no longer making money.

Yes I realize that Roth IRA's are post tax contributions and are not taxed at the time of withdrawl.
 
Bob970,

Second worst 10-year period was 1929-1939 with a return of -0.76%

<<u checked every single year since 1928 for 10,20,and 30 year returns? >>

YES.

Vi_edit,

You have a valid point, however, I did not take into account tax rate for a couple reasons.

1. They change
2. If you want to compare apples to apples, we would have to compare after tax returns to your after tax cost of debt. So, in calculating your after tax returns, you would be applying a capital gains tax rate, whicle calculating your cost of debt you would be using your marginal state and federal income taxes. Furthermore, if you were to contruct a portfolio with a mixture of the S&P and a municipal bond fund you coul further reduce your taxable returns as muni's are tax free. This would also act a hedge against down periods in the market.

Like I said, this thread was not intended to advise people on how to construct portfolios to take advantage of tax laws, rather to illustrtate returns on an absolute level.....

good point to clarify though

BTW, capital gains are 20%
 
Yeh, I know about municipal bonds too, it's just that one's I looked at had a pretty low return rate. IIRC, 3% or lower.

Thanks for letting me know what the cap gains rate was. I thought it was higher than that. Not that I'm going to complain. 🙂
 
sweet... musta taken a long time then 😀 hehe, btw i know very little about actual financial info so i'll leave this thread now 😉
 
Also remember that you owe no tax until you sell. Another advantage for long-term investors. Plus, transactions within 401k and IRA accounts aren't subject to tax either.
 
Do those numbers take inflation into account? If not - when you subtract inflation from that 9.8% average I bet you are getting quite close to the interest rate of your 30 year loan.

Edit: I oversimplified for the forum. Changed the logic a bit, conclusion is unaltered.
 
Vi_edit,

check out some muni funds by Vanguard and T Rowe Price... there are some really good ones to choode from with 5%+ plus returns over the last 10 years.

I live in New york, so the Vanguard NY Muni fund looked awesome.... ticker is VNYTX

7.03% return since inception ~ 1986

Link

Bob970

The whole project only took me about 15 minutes... Bloomberg terminal + MS Excel + some nifty min/max functions and viola

 
<<Do those numbers take inflation into account? >>

No. I dont understand why you would add inflation to loan interest. To my knowledge, mortgages are not indexed with inflation.... neither are investments in the stock market. So how is inflation an issue?
 
MisterT - You have given some relevant values, but for young people investing today, they don't really give an accurate picture.

If history repeats itself, which it usually does, we are on the cusp of another bear market which will encompass most of the people on here's prime investing lifetimes (the next 15-20 years).

Here are some numbers to judge how the recent previous long-term bear markets have turned out:

1802-1815 = 2.7%
1835-1843 = -0.6%
1853-1861 = -3%
1818-1897 = 3.9%
1902-1921 = 0%
1929-1949 = 0.9%
1966-1982 = -1.4%

Total Over 100 Years = 0.6% For All Recent Bear Markets

Equally you could look at the bull markets over the past hundred years and get a 14% return overall.

The important difference is when do they occur (historically) and where do you fall in that timeframe?

The secular bull market that began in 1982 is getting close to an end. Afterward, there will be a secular bear market, during which market returns will be low. This bear market will most likely encompass most of our working lifetimes (for younger people) on this board (20 years). Telling people that they will be able to make double digit returns in this type of environment doesn't seem right. All data should be presented and considered.
 
Telling people that they will be able to make double digit returns in this type of environment doesn't seem right.

I did no such thing.


All data should be presented and considered.

Agreed. You make a good point, people should definitely take it into account.


I would also like to remind people, that even if they are young, investing 100% in the US stock market is not a necessarily good idea. People should consider a mixture of other alternatives indcluding

-- Investments in bonds and foreign equity markets
-- A life insurance policy and disability insurance
-- Residential or commerical real estate
-- Personal business
 
That is good info. Even with the big crash of '29 we have a 8% gain. Without that we have 10%. Not too shabby...
 
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