Wednesday, January 30, 2008

1980 - 2007 Stock Market Returns for Various Indices

Last year, I posted a chart of the annual stock market and bond market returns for various indices for the time period from 1980-2006. The chart I previously posted included returns for small cap indices (Russell 2000, Russell 2000 Value, and Russell 2000 Growth), large cap indices (S&P 500, S&P/Citi 500 Value*, and S&P/Citi 500 Growth*), a broad-based foreign stock index(Morgan Stanley Capital International Index for the developed stock markets of Europe, Australasia, and the Far East ("MSCI EAFE index")), and an index of bonds (Lehman Brothers Aggregate Bond Index ("LB Agg.")). I have updated the chart (click on the image for a larger view) to reflect returns for 2007 and have also added historical returns for the Nasdaq Composite Index.

As shown in the chart below (click on the image for a larger view), all of the indices tracked have provided returns far in excess of inflation (inflation has averaged somewhere between 3 and 4 percent since 1980). The Russell 2000 Value index has outperformed all other investment styles over the time frame, returning 4070%, which is an average annual return of about 14.25%. This is total return is excepially impressive when one considers that Small Cap Value stocks were the worst performers of the tracked indices, losing close to 10% in 2007.

The Russell 2000 Growth Index is the worst performer since 1980, on the other hand, providing a total return of just 1011% over the time period, or about 8.98% per year. Overall formidable return of the Russell 2000 Value index is to be expected, given that Small Cap Value stocks have routinely outperformed other investment styles over long periods of time as I have previously discussed.

International stocks were the strong performers last year, with the MSCI EAFE Index providing the only double-digit returns of all of the indices tracked. The MSCI EAFE Index has now outperformed the S&P 500 Index for 6 consecutive years. This is to be expected, given that the U.S. runs an enormous trade deficit with the rest of the world and the U.S. dollar will inevitably weaken.

* I acquired most of the returns in this chart from old versions of the Callan "Periodic Table" of investment returns. The older charts I found provide data for the S&P/Barra 500 Value Index and the S&P/Barra 500 Value Index, instead of the S&P/Citi 500 Value and Growth Indices, respectively, during the time period from 1980-1986. I'm not sure whether the older S&P/Barra indices are substantially the same as the S&P/Citi indices, but they appear to be so.

** Edit - January 2, 2017 ***
I have updated this chart with results through 2016.

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