Show HN: S&P 500 Annualized Returns Fun Facts

22 points by iamjdg 8 years ago | 9 comments

I just grabbed the S&P 500 annualized returns, including dividends but not inflation, from 1871 to 2017.

Some fun facts:

-The longest run of positive returns is 9 years.

-9 year positive return runs happened 3 times, 1894-1902, 1991-1999, and 2009-2017.

-That means if 2018 is a positive return year, this would be the first 10 year positive return run ever in the 146 history of the S&P 500.

-The average and median length of positive return runs is 3.6 years and 2 years, respectively.

-The longest run of negative returns is 4 years, this happened once from 1929-1932.

-The average and median length of negative return runs is 1.3 years and 1 year, respectively.

-The best ever annual return is 56.8% in 1933.

-The worst every annual return is -44.2% in 1931. 2008 was second worse at -37.2%. But from 2000-2002 there was a 3 year run of negative returns totaling -43.4% (-9.1%, -12.0%, -22.3%).

-The average positive and negative annual returns are 19.1% and -12.3%, respectively.

-The average and median annual return for the entire 146 history of the S&P 500 is 10.8% and 11%, respectively.

These numbers really gave me a sense of appreciation for the power of and confidence in the free market capitalist system and index investing. This growth represents wealth generation in the economy driven by competition and the desire to improve our lives.

10.8% return per year, 3.6 year positive return runs and only 1.3 year negative return runs, passively, I’ll take that deal all day long. All I have to do is buy the S&P 500 and sit back and reap the benefits. If only we could figure out a sustainable way to operate it.

lodi 8 years ago |

> But from 2000-2002 there was a 3 year run of negative returns totaling -43.4% (-9.1%, -12.0%, -22.3%).

You can't add returns like that. Each year is cumulative/compounding. At the end of the three years, your investment is down to 0.909 * 0.88 * 0.777 ~= 0.6215, so you've actually lost 48%, not 43%.

Lookup arithmetic vs geometric investment returns for more info.

To really drive the point home, consider the following thought experiment: let's say you have a catastrophic -99.99% return the first year, then a solid 9.74%[1] return for each of the next 99 years. The arithmetic average return is (-0.9999 + 99*0.0974)/100, or about 8.6%, which sounds pretty good. But the geometric (i.e. actual) trajectory of your money is that you started with $1000, went down to $1, and then slowly grew back to exactly $1000! So your actual 100-year return was 0%.

[1] Use the 99th root of 10000 for the exact value needed to make this example work.

maerF0x0 8 years ago | |

> Each year is cumulative/compounding. At the end of the three years, your investment is down to 0.909 * 0.88 * 0.777 ~= 0.6215, so you've actually lost 48%, not 43%.

You're correct on the idea but wrong on your math.

1-.6215 = 0.3785 ... Successive positive compounding leads to compounded growth, but successive negatives lead to diminished losses (because in year 2 you're only losing 12% of 90.9% , not 12% of 100%)

lodi 8 years ago | | |

My bad, I messed up the mental arithmetic on 1-0.62. Right, 38%.

iamjdg 8 years ago | |

thanks, your right, my mistake. i was just surprised that the most negative return years in a row during the entire history of the S&P 500 was only 4 years, and typically it is only 1.4 years.

grouseway 8 years ago |

I have to wonder if these kind of historical comparisons are useful. The market seems so much different than it did prior to 1940 (in my totally naive bystander opinion). 100 years ago you didn't have:

- A diverse economy with many different verticals.

- Globalization of trade

- Massive pension funds with long term holdings

- Average citizens investing capital in other's people production.

- Easy access to trading/information and safer investments like mutual funds and ETFs.

- A giant swath of humans employed in finance all trying to make money and help the market self correct.

- Automated trading that benefits from (and probably creates) minor turbulence to constantly skim money.

What hasn't changed:

- Human psychology

- Economic feedback cycles and interdependence

The market will crash again, but I don't think you can infer too much from the market 100 years ago even as an average.

iamjdg 8 years ago | |

agreed. the farther back the data point, perhaps the less applicable it is today.

i was just surprised by the typical length of consecutive runs positive return years (3.6) vs negative return years (1.4).

Also, that if history has any bearing, 2018 will probably be a negative return year (there has never been longer than a 9 year run of positive returns).

greenyoda 8 years ago |

Thanks for the interesting statistics! Could you share what the source of your data was?

> "All I have to do is buy the S&P 500 and sit back and reap the benefits."

My biggest investment is an S&P 500 index fund, but as all the disclaimers say: "Past performance is no guarantee of future results." One has to be aware that investing in stocks does have a risk of prolonged bear markets and loss of capital.

iamjdg 8 years ago | |

No problem!

Oh yes, good idea, sorry about that, the source of data was: http://www.moneychimp.com/features/market_cagr.htm

Yes of course, no guarantees. But seeing all the long runs of positive returns vs the short runs of negative returns does boost my confidence.

arisAlexis 8 years ago |

if only the future was same as the past and the economies remained the same