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Annual Returns on Stock, T.Bonds and T.Bills: 1928 – Current
- ferros 7y agoWhy is the volatility so high only recently on the 10 year note. e.g. historically it only fluctuated low single digits, while stocks have always had large volatility ranges.
- foota 7y agoPossibly due to the weird interest rates in the last 10 years? I think T-Bond pricing will vary based on interest rates, like if the interest rate has declined since you bought your bond it will be worth more iirc, so the weird interest rates market recently could have an outsized effect here?
- jakeinspace 7y agoSo a $100 investment in an S&P 500 equivalent (not yet an established index) on January 1st 1928 would be worth $382,850 by January 1st 2019? That's over a 250x return after adjusting for inflation, pretty neat.
- mattrp 7y agoWell of course... no one cares about inflated stocks it seems.
- hwbehrens 7y agoFor those curious, it's about a 9.49% annualized rate of return over the last 91 years.
- duxup 7y agoWith maybe the note that $100 in 1928 was worth quite a bit... I am drifting into another point entirely and your point still stands.
- monknomo 7y agoLooks like back then most people made $.40-$.60 an hour, so figure $900 a year?
- anotherman554 7y agoThat's a 91 year time period, if you were patient enough to wait that long to enjoy the return on investment you'd probably be dead.
- nappy-doo 7y agoFYI, stocks show CAGR of 9.59%.
- kyleblarson 7y agoThe volatility of equities in the 1928-1942 period is crazy.
- YayamiOmate 7y agoYeah, but given the historical contex it's understandable if not expected. It's the great crisis (probably including it's preludium) untill 2nd WW situation clarified.
- rolltiide 7y agoThe way to play treasuries are in massive highly leveraged carry trades. They're not for actually holding, unless you are starting with $100,000,000* in capital. *This amount is tied to how much you want to make a year based on the treasury bond's interest rate. This will always be lower than inflation.
- AnthonyMouse 7y ago> The way to play treasuries are in massive highly leveraged carry trades. Isn't that how you lose all your money when e.g. the Fed lowers interest rates?
- maerF0x0 7y agoI wish they'd say what "Stocks" means. Is it the entire market? On which exchanges? This is a relevant read: https://www.investopedia.com/terms/s/survivorshipbias.asp https://www.investopedia.com/terms/s/survivorshipbias.asp
- pmiller2 7y agoThe very leftmost column of the table has the heading 'S&P 500 (includes dividends)', so I assume that's the meaning of 'stocks' in the other columns. If not, that would be very misleading.
- baot 7y agoI think it's worth noting that S&P 500 index funds didn't exist until the 70s. You'd be spending a lot of time and money to approximate it before that.
- sdinsn 7y agoThe S&P 500 just tracks the largest 500 publicly traded companies. So no, it's not difficult to approximate.
- baot 7y agoYou need to pay commission and spread every time you rebalance your portfolio (daily, if you copy the frequency of modern funds) So at the £5ish/trade of my current broker, that's a cool £912500/year on just commission. For some reason the massively reduced ease of entry to a trading strategy like this is never considered when lauding its historical performance.
- sdinsn 7y ago> daily, if you copy the frequency of modern funds Modern S&P500 funds like SPY or VOO rebalance quarterly FYI
- deleted 7y ago
- refurb 7y agoInteresting that for the 2007 financial crisis, you only had to wait until early 2012 to make up your loses. Even for the crash of the early 1930's, after 8 years you were back to where you were.
- kp98 7y agoThat would be the massive amount of QE & money injected into the system. I doubt next recession it will be so simple to sell the bonds we need to to run a massive QU campaign again
- foota 7y agoHasn't the Fed mostly rollbed back the QE by selling off the assets they bought?
- pjmorris 7y agoLooking at Fed total assets [0], the Fed's sold off only a fraction of what it took on during the crisis and QE. [0] Fed total assets from FRED: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
- foota 7y agoWow, no kidding. I wonder how the mix has changed? Obviously I was wondering about overall going down, but I seem to recall there being like a change of short for long term assets or something?
- kp98 7y agoThe fed purchased long term assets like mortgage backed securities to provide liquidity and relief to corporations that held too much bad debt on their balance sheets. This provided immediate relief for distressed institutions. The fed also expanded the balance sheet by selling long term bonds, which offered relatively lower rates in comparison to short term notes and bills, this provided the cash infusion needed for QE to stimulate the economy.
- deleted 7y ago[deleted]
- jedberg 7y agoNow the fun part. Pick any 30 year period, and you will beat inflation with stocks. Even if you get in at a peak, 30 years later, you will be well ahead.
- grandridge 7y agoThis happened for one 100 year period when the world grew from 2bn to 7bn. Good luck in the next 30
- tunesmith 7y agoYou think we're at market top for the next 30 years? Inflation adjusted?
- bozoUser 7y agoIt would have been great if someone could have also added REITs. The argument I always hear is real estate vs the stock market.
- bagacrap 7y agoReal estate is tricky because you're usually gambling with someone else's money (ie a mortgage) and your access to that is dependent on many factors like provable income and credit rating.
- imeron 7y agoThe San Francisco FED made a similar analysis, including housing: https://www.frbsf.org/economic-research/files/wp2017-25.pdf https://www.frbsf.org/economic-research/files/wp2017-25.pdf
- ChuckMcM 7y agoI recommend you download the spreadsheet, it can be really helpful in doing the 'null' hypothesis in financial analysis. I always like to compare my choices in investments versus the 'stick it into SPX500 ETFs' as the alternative. To do that you need to collect all this data, which is doable, but hey here they have it all in a nice package.
- darawk 7y agoDo keep in mind that absolute returns are not the most important factor in investing. What you should care about are risk-adjusted returns of a particular asset, and return stability of your whole portfolio. You can always use leverage to magnify the returns of any asset class up to whatever level you want. The only limiting factor there is risk and the cost of borrowing. Before I learned about finance I thought that the purpose of diversification was safety. And it is, in part. But as a consequence of the AM-GM inequality [1], diversification actually increases your long-term returns. A returns stream of 8% every year will have substantially more money than a returns stream with a mean of 8%, that bounces up and down. If you play around with some numbers, you'll quickly see how profoundly important this fact is. 1. https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_geometric_means https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_g...
- blevin 7y agoThe arithmetic vs. geometric mean distinction is a good one to note. Since you mention risk-adjusted return, do you favor any particular approaches to optimization? ReSolve makes a pretty strong case for numerical optimization, summarized by this decision tree based on prior beliefs: https://twitter.com/gestaltu/status/1044977487556595714 https://twitter.com/gestaltu/status/1044977487556595714
- darawk 7y agoI generally prefer using something like scipy.minimize to maximize the expected sharpe ratio with returns de-magnified, which causes the optimization to be closer to a minimum variance portfolio.
- Retric 7y agoDiversification only works under specific assumptions, it’s far from a universal benefit. Low transaction fees being an obvious example. If moving from one asset category to another involved paying high taxes, it’s very rarely worth it.
- darawk 7y ago
- nostromo 7y agoI'm interested in how they're pricing the S&P 500 before it existed. Yes, you could just say, "the biggest 500 public companies in the US" -- but it's a little more nuanced than that, so it'd be interesting to see how it's calculated.
- typpo 7y agoLast weekend I built an S&P returns calculator that exposes similar statistics and adjusts for inflation. Accounting for inflation reduces the ROI by an order of magnitude, but the result is still impressive! (36,560.12% return) https://www.in2013dollars.com/us/stocks/s-p-500/1928 https://www.in2013dollars.com/us/stocks/s-p-500/1928
- pedrosorio 7y agoThe bar plot below "Here's the rate of gains and loss by month, including dividends" has the y-axis off by 100x (i.e. 0.2% instead of 20%).
- typpo 7y agoThanks. Decimal conversion issue!
- nullbyte 7y agoIs this adjusted for inflation?
- legatus 7y agoI'm curious -- what does HN think of factor investing [0]? It has been shown over long periods of time to outperform the total market, and has seen many new ETFs available. Does anyone here tilt towards small cap value? Do you think those effects will last, now that they're more widely known, or are the last 15 years evidence of them weakening? I've been looking into investing but I'm probably going with a total world stock market. Part of the reason I find those ETFs less attractive are the higher associated fees as well as the more "active" look. I have trouble believing anyone who claims there is a way to consistently outperform the market while charging me for it. [0] https://www.investopedia.com/terms/f/factor-investing.asp https://www.investopedia.com/terms/f/factor-investing.asp
- 2drew3 7y agoGiven the bulk of a median American household's wealth is tied to the equity of their primary residence, it would be interesting to see how these returns stack an investment in a single family residential home. I imagine it would be difficult to parse out home improvements and so forth, but it would be a comparison that more people to could relate to given the average person doesn't buy T-bills and such.
- bryanlarsen 7y agoKeep in mind that these are cherry-picked, they only include American returns. The 20th century was an exceptional one for the United States. The 21st century may also be, but you should definitely be diversifying globally. The worst case return definitely isn't on this list, it's the returns from 1914 Germany, which didn't break even until 2014...
- whb07 7y agoDefinitely. Having said that very few countries have an advanced financial system. Probably a handful of cities globally, and even then some like Singapore or HK werent a thing 100 years ago. But about that whole Germany thing, they did kinda, sorta, really screwed the pooch on that one by starting 2 world wars. Maybe they kinda, sorta, you know...had it coming.
- tunesmith 7y agoI'd love to see this plugged in to a tool that asks 1) What allocation percentage of stocks/bonds do you want, 2) What length of period in years (i.e. 20 years, 40 years), 3) What confidence level (50%, 75%, 90%) and yields what APY you can expect. (The higher the confidence, the lower the APY.) I'm still convinced that the general advice out there is highly out of whack, and that someone's expected returns should be very low. I'm currently modeling under 2% (post-inflation, more like 4% with) for the future, for a simple allocation model and a 10-year window.
- jonas21 7y agoI like to use Portfolio Visualizer for that sort of thing: https://www.portfoliovisualizer.com/monte-carlo-simulation https://www.portfoliovisualizer.com/monte-carlo-simulation
- jashkenas 7y agoHere’s a quickie (linear/log) line chart of the data in this table: https://observablehq.com/@jashkenas/annual-returns-on-stocks-treasury-bonds-and-treasury-bills https://observablehq.com/@jashkenas/annual-returns-on-stocks...
- jonbarker 7y agoWhich 30 year period you get to live and work in is what matters most, and the timing of the bad years. Which is why I recommend this calculator: https://firecalc.com/ https://firecalc.com/.
- Booktrope 7y agoWait! These figures are not inflation adjusted. Inflation has been about 15X since 1928. So, the $382,000 shown on the chart for 2018 is now worth about $26,000 in 1928 dollars, against $143 value sometime in 1928. That is, in constant dollars, about 180 x over 90 years, not a bad return on investment, but, not what's shown on this chart! However, if you start your comparison with 1932 instead, market average value has increased from about $50 into about $26000, or 520 times return over investment over 86 years, a dramatically better result! Illustrating the second most basic rule of investing: buy low. Consider, if you'd invested in a market fund in 1999 instead, you'd have turned $156,000 into about $253,000 (inflation adjusted) or a gain of about (uh-oh) much less than 2x over almost 20 years. In other words, ROI of much less than 10% per year. Investments not so good in this century, even with the huge stock market run-up of the past few years! Just for comparison, a plumber in the US seems to have made about $1.25 an hour or so in 1928, compared to about $27 an hour in 1998 (according to BLS). In constant dollars, wages seem to have less than doubled. So, long term, investors did much, much better than workers, that's for sure! And since 1997 plumbers have just kept up with inflation, according to BLS (going from $17.50 an hour in 1997 to to $27 an hour in 2019 -- equivalent to $17.50 in 1997 dollars). So, big news. Invested capital has increased much faster than compensation of labor in the US, both long and short term. Well, if you think plumbers are typical. Obviously in the past 20 years, hacker pay has done much better than plumber pay! In fact, hacker pay has increased much more than return on investment! Does this mean, capitalists should fight for lower hacker wages? Or does it mean, we have met the enemy and it is us? Only time will tell...