Chart of the Day: What Have Stock Market Returns Been Over the Past 90 Years?

From Big Picture blog:

dilution

Description:  This chart shows the distribution of annual returns for the S&P500 (or its equivalent) from 1926-2014 (89 years).  For example, there were 6 years where the S&P returns were between 18-20% as you can see by the height of the bar between 18-20%.

Ask students to analyze the chart and provide at least three insights gleaned from the data. Here are a few that I noticed (and send me along any additional ideas!):

  • Of the 89 years analyzed, 65 (or 73%) of the years had positive returns.  The bias in the market has been a positive one historically.  You can also see this based on the three return numbers above the chart.
  • While we often say that the stock market (usually represented by index like the S&P500) has returns of 8-10%, none of the years in the sample set had a return between 8-10%.
  • The shape of this chart provides a reminder that returns are volatile on an annual basis. You can see this as evidenced by the height of the bars on the positive and negative extremes.  You need to have a strong stomach to invest in the stock market to ride the ups and downs.
  • The most frequent return (as noted by the highest bar) over this period was greater than 34%.
  • With an interest rate of 10%, based on the rule of 72, you double your money every 7+ years.
    • Thanks to Art for pointing out this error which has been corrected.

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Check out the NGPF Lesson on Investment Strategies