In 2007, 2008, and 2009, I posted charts of the annual stock market and bond market returns for various indices for the time periods from 1980-2006, 1980-2007, and 1980-2008, respectively. The charts 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")), an index of bonds (Barclays Capital Aggregate Bond Index Lehman Brothers Aggregate Bond Index ("BC Agg."))*, and the Nasdaq Composite Index. I have updated the chart (click on the image for a larger view) to reflect returns for 2009.
2009 was a great year for practically all stock indices as equities and bonds rebounded strongly from an abysmal 2008. Stocks had plummeted in throughout 2008 and up through early 2009 as there was a was real risk of full-scale financial collapse and an ensuing Depression as many banks appears to be on a rapid trip toward insolvency and default on obligations. However, the government provided the short-term guarantees and liquidity that the banks needed and was able to stave off economic collapse. The common view is that we experienced a once- or twice- a century economic catastrophe, It appears as though the worst is behind us, although it will probably be years until America and Europe experiences strong economic growth.
All of the equity indices that I track returned at least 20% in 2009, led by the 43,89% of the Nasdaq Composite. The MSCI EAFE Index also provided strong returns, appreciating 31.78% as economic conditions improved and the U.S. Dollar depreciated against many foreign currencies. Growth stocks outperformed their Value counterparts and the Russell 2000 Growth and S&P 500 Growth indices each returned over 30% and at least 10% more then their Value counterparts (i.e., the Russell 2000 Value and S&P 500 Value indices, respectively).
The Russell 2000 Value Index provided the strongest returns between 1980 and 2009, returning a total of 3,474.25%, or an average of 12.66% per year. The total returns of the Russell 2000 Value Index has returned more than 1,000% relative to its initial value on December 31, 1979 more than the next best index I tracked, the S&P 500 Index.
The chart below clearly shows that stocks can provide substantial returns over long periods of time (click on the chart for a larger view). This may come as news to anyone who has been investing over the past 10 years, but one needs to appreciate that these are extraordinary times and that although short-term returns can be extremely volatile, longer term returns are still quite strong.
* The BC Agg. bong index was known as the Lehman Brothers Aggregate Bond Index prior to 2008.
** Edit - January 2, 2017 ***
I have updated this chart with results through 2016.