4 ms·

10%/year investment return is virtually impossible these days.

by jayess 11y ago

Artistry121 11y ago
S&P 500 average return since the early 1900s has been 12%<. But... that includes volatility. Still it doesn't seem like an impossible number - the past 6 years have all met that growth target.
- msandford 11y ago
  The last 6 years have been a bull market after a giant crash. What about the last 10 years?
- sz4kerto 11y ago
  S&P return since 2000 was 2.2% on average, 0.05% (!!) inflation-adjusted. Last decade was 5.3%, or 3.2% inflation adjusted.
  - Artistry121 11y ago
    Good point - I took "these days" to mean the past few years.
  - jcdavis 11y ago
    Total return is ~4.3% nominal ~2% real annualized since Jan 2000, ~7.5% nominal ~5.4% real annualized since Jul 2005. Total return isn't a perfect measurement (particularly due to taxation of dividends), but its a much more useful number. Over a long term, dividend reinvestment makes a huge difference.
- mkozlows 11y ago
  "The S&P 500 index in its present form began on March 4, 1957" says Wikipedia. And its return since the 50s is 7% in real terms. And there were decades at a time (including the 2000-2010 period, where real return was -3.4%) that significantly underperformed that), so it's not even a reliable 7% a year, which you'd need for these calculations to work out.
  - Artistry121 11y ago
    It began in 1928 in its original form. I mentioned volatility in my original comment - but if you have a large portfolio and low expenditures you can afford many down years. For additional information: www.firecalc.com
- mikeash 11y ago
  "The past 6 years" means you're starting in 2009, which was the depths of the recession. If you look at the past 8 years instead, your average return would be a lot less, especially if you had to take out money to live on while the index was at the bottom. On an inflation-adjusted basis, the S&P 500 has not grown at all for the past 15 years: http://www.multpl.com/inflation-adjusted-s-p-500 http://www.multpl.com/inflation-adjusted-s-p-500 The average rate of return for the past 50 years is pretty small. You can make almost any rate of return look reasonable if you cherry-pick the right timeframe, but the long-term average doesn't look good at all.
  - pinewood74 11y ago
    That chart doesn't take into account dividends. At the end of 2014, the 15 year annualized return of the S&P 500 was 4.24%. The 20 year annualized return was 9.85%. SO, while you were claiming the above poster was using bad numbers by using "the last 6 years," you are similarly using biased data by looking at the past 15 years because that's the eve of the dot com bust.
    - mikeash 11y ago
      Good point about the dividends. Do your numbers take inflation into account? Edit: looks like without inflation, if this calculator is to be believed: http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/ The annualized return for the past 15 years with both dividends and inflation is under 2%. I know that I'm cherry-picking by using a 15 year period. That was my entire point: that you can cherry-pick to find almost any rate of return. However, that particular period is still pretty relevant. If your plan is to spend 10% of your savings per year, then a 15-year period of zero (or just small) returns will wipe you out. Even if it bounces back afterwards, you're still screwed.
caublestone 11y ago
I used this calculator to compute the CAGR for the S&P 500 from 1995-2015. It calculated the average annual return to be 11.5% before inflation so roughly 9% after. You are correct that 10% is difficult but you can get really close. http://www.moneychimp.com/features/market_cagr.htm http://www.moneychimp.com/features/market_cagr.htm
- tunesmith 11y ago
  CAGR isn't really relevant on a per-person basis, though. It's not like we all receive our investment capital as a lump sum at the beginning of our savings history. This actually makes a huge difference and makes CAGR returns unrealistic.
- jimbobob 11y ago
  I think you are looking at the arithmetic average, which isn't very useful for the following reason: Year 1: 100% gain Year 2: 50% loss The arithmetic average here is 50%, which the geometric average is 0%. The CAGR listed is going the correct metric to use but that is not 9% after inflation using the date range you provided. I get 7.42% for 1/1/95 - 12/31/14 after inflation and dividends are factored in. Not bad by any stretch of the imagination, though!

10%/year investment return is virtually impossible these days.

by jayess 11y ago

10%/year investment return is virtually impossible these days.

S&P 500 average return since the early 1900s has been 12%<. But... that includes volatility. Still it doesn't seem like an impossible number - the past 6 years have all met that growth target.

msandford 11y ago
The last 6 years have been a bull market after a giant crash. What about the last 10 years?
sz4kerto 11y ago
S&P return since 2000 was 2.2% on average, 0.05% (!!) inflation-adjusted. Last decade was 5.3%, or 3.2% inflation adjusted.
- Artistry121 11y ago
  Good point - I took "these days" to mean the past few years.
- jcdavis 11y ago
  Total return is ~4.3% nominal ~2% real annualized since Jan 2000, ~7.5% nominal ~5.4% real annualized since Jul 2005. Total return isn't a perfect measurement (particularly due to taxation of dividends), but its a much more useful number. Over a long term, dividend reinvestment makes a huge difference.
mkozlows 11y ago
"The S&P 500 index in its present form began on March 4, 1957" says Wikipedia. And its return since the 50s is 7% in real terms. And there were decades at a time (including the 2000-2010 period, where real return was -3.4%) that significantly underperformed that), so it's not even a reliable 7% a year, which you'd need for these calculations to work out.
- Artistry121 11y ago
  It began in 1928 in its original form. I mentioned volatility in my original comment - but if you have a large portfolio and low expenditures you can afford many down years. For additional information: www.firecalc.com
mikeash 11y ago
"The past 6 years" means you're starting in 2009, which was the depths of the recession. If you look at the past 8 years instead, your average return would be a lot less, especially if you had to take out money to live on while the index was at the bottom. On an inflation-adjusted basis, the S&P 500 has not grown at all for the past 15 years: http://www.multpl.com/inflation-adjusted-s-p-500 http://www.multpl.com/inflation-adjusted-s-p-500 The average rate of return for the past 50 years is pretty small. You can make almost any rate of return look reasonable if you cherry-pick the right timeframe, but the long-term average doesn't look good at all.
- pinewood74 11y ago
  That chart doesn't take into account dividends. At the end of 2014, the 15 year annualized return of the S&P 500 was 4.24%. The 20 year annualized return was 9.85%. SO, while you were claiming the above poster was using bad numbers by using "the last 6 years," you are similarly using biased data by looking at the past 15 years because that's the eve of the dot com bust.
  - mikeash 11y ago
    Good point about the dividends. Do your numbers take inflation into account? Edit: looks like without inflation, if this calculator is to be believed: http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/ The annualized return for the past 15 years with both dividends and inflation is under 2%. I know that I'm cherry-picking by using a 15 year period. That was my entire point: that you can cherry-pick to find almost any rate of return. However, that particular period is still pretty relevant. If your plan is to spend 10% of your savings per year, then a 15-year period of zero (or just small) returns will wipe you out. Even if it bounces back afterwards, you're still screwed.

caublestone 11y ago

I used this calculator to compute the CAGR for the S&P 500 from 1995-2015. It calculated the average annual return to be 11.5% before inflation so roughly 9% after. You are correct that 10% is difficult but you can get really close. http://www.moneychimp.com/features/market_cagr.htm http://www.moneychimp.com/features/market_cagr.htm

tunesmith 11y ago
CAGR isn't really relevant on a per-person basis, though. It's not like we all receive our investment capital as a lump sum at the beginning of our savings history. This actually makes a huge difference and makes CAGR returns unrealistic.
jimbobob 11y ago
I think you are looking at the arithmetic average, which isn't very useful for the following reason: Year 1: 100% gain Year 2: 50% loss The arithmetic average here is 50%, which the geometric average is 0%. The CAGR listed is going the correct metric to use but that is not 9% after inflation using the date range you provided. I get 7.42% for 1/1/95 - 12/31/14 after inflation and dividends are factored in. Not bad by any stretch of the imagination, though!