Long term Stock-market returns
What's the long-term return you can expect on your nest egg?
Long-term: Between 20 and 30 years can qualify as "long term" over a human life-span. People typically start careers at lower salaries, move up, and then plateau. A 30-year period could start roughly at 35 and go to 65.
Stock-market -- Historical returns: Crestmont Research has some great matrix charts showing the annualized returns of the stock-market, from any given year to any other year, since 1900. For starters, consider the one that looks at the (nominal) S&P 500 index, ignoring inflation, taxes and dividends. Helpfully, there's a black diagonal (left top to right bottom) drawn at the 20-year horizon. As an example, someone putting money into the S&P 500 in 1970 saw an annual return of 7% over 20 years, ending 1990. He saw 10% annual over 30 years, ending 2000.
Tax-deferred, with dividends reinvested: A second chart adds in dividends, and assumes the money is in a tax-deferred account, like a 401(k) or IRA. Now, we see that over 20 to 30 years the annualized return works out to between 5% and 15%. There are long periods where returns are either high or low. So, assuming an average of 10% would not be conservative. On the other hand, based on the last 100 years, there is not much reason to assume anything below 5%.
Inflation: Looking at the CPI-adjusted matrix, real returns are around 1% - 8%, annualized.
Just some food for thought. Crestmont has a lot of other interesting charts.
Long-term: Between 20 and 30 years can qualify as "long term" over a human life-span. People typically start careers at lower salaries, move up, and then plateau. A 30-year period could start roughly at 35 and go to 65.
Stock-market -- Historical returns: Crestmont Research has some great matrix charts showing the annualized returns of the stock-market, from any given year to any other year, since 1900. For starters, consider the one that looks at the (nominal) S&P 500 index, ignoring inflation, taxes and dividends. Helpfully, there's a black diagonal (left top to right bottom) drawn at the 20-year horizon. As an example, someone putting money into the S&P 500 in 1970 saw an annual return of 7% over 20 years, ending 1990. He saw 10% annual over 30 years, ending 2000.
Tax-deferred, with dividends reinvested: A second chart adds in dividends, and assumes the money is in a tax-deferred account, like a 401(k) or IRA. Now, we see that over 20 to 30 years the annualized return works out to between 5% and 15%. There are long periods where returns are either high or low. So, assuming an average of 10% would not be conservative. On the other hand, based on the last 100 years, there is not much reason to assume anything below 5%.
Inflation: Looking at the CPI-adjusted matrix, real returns are around 1% - 8%, annualized.
Just some food for thought. Crestmont has a lot of other interesting charts.
When I was an advisor I relied upon those very historical figures. But I have now concluded that they are not applicable to today’s economy. In fact we have not seen good results since the end of the time period you used. Since the end of the tech stock bubble we have not seen real growth in the market value of our productive capacity. Today’s Dow is 9362 in 1999 dollars, over 27% less than we would think, and still over 2000 points below the 1999 high. Even the Dow high in 2006 was still below the 1999 high in constant dollars. Low interest rates, massive debt, and expanded regulation have finally begun to have a significant impact on wealth creation. Further, the future does not hold real promise, in my opinion. The Republicans are not now inclined to actually improve our situation. The Republicans are not talking about any changes to our current law, in spite of their rhetoric of criticism of regulations. They have rarely taken laws off the books and never completely. It is imperative that we begin to move away from regulation and towards capitalism and freedom.
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