Getting a 13% Return
A slowing economy has investors worrying about past, present and future stock market returns. After a huge upward move that saw American stock values double from October 2002 to October 2007, everyone seems to be worried about the future.
This may surprise most people, despite the recent 5 year rally; the entire new decade has not been kind to U. S. stocks. Since the end of 1999, a popular starting point for this decade, cash accounts and Treasury Securities have beaten stock returns (keep in mind I am referring to indexes. Individual securities may have beaten out the indexes. For example; we bought Apple Computer about 5 years ago at $7/share and have sold out portions of shares on the way up at $50, $75, $100, $150 and $200. Fantastic returns.)
The average annualizes returns from 12/31/99 to 12/31/07 for various asset classes have been;
30 year Treasuries 8.77%
10 year Treasuries 6.45%
Dow Jones Industrial 3.95%
Cash 3.24%
S & P 500 Index 1.66%
NASDAQ -4.70%
During this same period foreign securities have outperformed the U.S. securities (in some part due to the 40%+ drop in the dollar). The S&P 500 Index is in 57th position out of 60 global markets this decade. As 2008 started markets were down even more due to the subprime mess. Actually, the Dow Jones average is about where it was prior to the 9/11 bear market. If you factor inflation into the return the situation is even more dire.
Oh, is this the end, you ask? NO! Markets like the weather move in cycles. The 1982-2000 bull market was the largest gain in history. You made a fortune during this run and like all excesses the markets are digesting the gains. Classically, long drawn out bear markets follow big bull markets. Overall, things average out. It may take a few more years to finish the cleansing of the “Indexes”.
U.S. shares do not look good as of late, but, in the most recent 50 years it does look fantastic. Since 1950, a period that includes some severe bear markets, stocks have risen 50 times!! Yet, in the first half of the 20th century, that is, up to 1954, which includes the worse quarter century in market history, stocks were up just10 times. The more recent past has been characterized by lack of global wars, great moves in industrialization, trade, technological knowledge and increasing education levels, reducing commissions and the increase in the work force.
Even if the next few years prove dull, the above positives, and many more, will help equities. I am very optimistic long term, and, isn’t that why you invest … for the long term.
Here is a thought for you. The S&P 500 has averaged an annual rate of return of around 13% since 1925. That 13% took place in good and bad years, World War 2, a depression, Hitler, mass murders, on the brink of thermonuclear extinction in the Cold War, Nixon resigning and even Elvis dying (Yes, he is dead). Through all of that, and, whatever the media will create as the “Crisis de jour”, the markets have averaged 13% per year. Here is a summary of the S&P 500 returns by decade.
| S & P 500 Decade Returns | |||||||||
| 1920’s | 1930’s | 1940’s | 1950’s | 1960’s | 1970’s | 1980’s | 1990’s | ||
| 19.2% | -0.01% | 9.2% | 19.4% | 7.8% | 5.9% | 17.5% | 21.5% | ||
You will note some periods produced below and some above the 13% average. Overall the market averaged 13%. Look at the ‘80s and ‘90s. The returns were WAY above 13%. You knew this current decade would have to be sub-13% just to average out the wild ‘80s and ‘90s. So don’t be upset if your returns have been paltry the past 8 years. Since 1980 to today how have you averaged? I am willing to bet you did fantastic.
I am carefully loading up my personal portfolio and all my clients with good quality low priced stocks. The benefit will be to enjoy the decade starting in 2010 and after –
Do your research, layout a plan and execute the plan. What am I saying …?? Discipline now or regret it later.