Saturday, June 30, 2012

Historical Annual Returns for the S&P 500 Index - Updated Through 2011

2011 was a volatile and below above-average year for the S&P 500 Index.   The U.S. stock market struggled in large part as a result of the continuing turmoil within Europe.  The S&P 500 Index rose a mere 2.11% in 2011.

The annualized return for the S&P 500 Index (and its precursor S&P 90 Index) between 1926 and 2011 was about 9.77%.  The 5-year annualized return through the end of 2011 was about -0.25%, one of the worst 5-year annualized return shown on the charts below.  The 10-year annualized return through 2010 was about 2.92%, a slight improvement over the weak 1.41% return recorded in the 10-year period ending in 2010.

According to the Wall Street Journal, as of June 29, 2012, the P/E ratio of the S&P 500 Index based on estimated earnings over the next 12 months is approximately 12.95. As I have previously discussed, the average P/E ratio of the S&P 500 Index and other large caps stocks has supposedly been around 16 based on data dating back to the 1800s, so the S&P 500 Index may have some room to grow again in 2012. As of June 29th, 2012 the S&P 500 Index (including reinvested dividends) is up about 9.49% so far this year.

I have posted an updated chart for the returns of the S&P 500 Index during the period between 1926-2015.


windrider354 said...

Great data. Thank you.
My crude calculations using the year to year std dev of the S&P 500 for the last ten years show that its risk adjusted return is lower than any other asset class I looked at. Add the state of the world economies and I don't have a lot of optimism about the performance of the broad stock market in the next few years.

dana hendrickson said...

Thanks for providing this market data. I am interested in examining the statistical distribution of rolling average annual returns for the SP500 for various periods of time. Example, the 10-year rolling average of annual market returns from 1965 to 2011. Do you know of a computer application that would enable me to enter annual market data (price changes and dividends) and generate these returns, standard deviations, etc? And possibly display results in graphs?

Also, has anyone published this type of information online? URL?

Thank you.

Dana Hendrickson

Jim said...

Dana, you can download the historical closing data for the S&P 500 dating back to 1950 from Yahoo Finance, although that data does not account for reinvested dividends. You might be able to calculate a standard deviation with Excel, although I have never done so myself.

Anonymous said...

How are you calculating the annual returns, particularly the 2.11% increase for 2011? The S&P 500 opened on January 3, 2011, at $1257.64 and closed on December 30, 2011, at $1257.60. Isn't that a loss of (1257.60-1257.64)/1257.60, or -0.003%?

Jim said...

^^^ Anonymous (9/08/2012 6:10 PM), Standard & Poors does not account for dividends paid by index constituents. Therefore, dividends paid by companies within the S&P 500 Index are not reflected in the S&P 500 value reported on a daily basis by Yahoo Finance, the Wall Street Journal, or other media outlets.

The returns in the chart are total returns that account for reinvestment of dividends. Accordingly, even though the S&P 500 Index value fell from 1257.64 to 1257.60, the total return was actually +2.11% if one accounts for reinvestment of dividends.

Unknown said...

Thanks for the insightful post. This is some great data.

Just wanted to get some clarity on the "total return" data you've used in compiling this. Total return can have two meanings 1) it includes the yield from dividends OR 2) it includes the reinvestment of dividends (ie, the yield as well as the assumption that those proceeds are reinvested in the index.)

Thanks for your help.

Jim said...

^^^ The "total return" data accounts for reinvestment of dividends.

Andy said...

Hi Jim,

Great data. Just goes to show how compound interest can work for you over long periods of time. Where do you get the total return data from out of interest?

Also, I'm not quiet sure how you get your avg. annualised returns? I calculate it as geometric mean, but just looking at 5-year Avg. Annual Returns for example - you have -5.11% for the first five years of investment. However, to get this figure I only include 1927 through 1931. So should'nt there be an entry before -5.11 for the five year period starting in 1926 and ending 1930, which would be 8.67%. Unless I'm mistaken.

Cheers, and thanks for the data.

Anonymous said...

Hello, Can you please check your annualized return figure. It seems like mis-calc.

for ex. 1926 to 1928 return were 11.62 + 37.49 + 43.61 so total is 92.72,

Annualized return at end of 1928 would be 92.72 / 3 which will be 30.91. but your spreadsheet shows 30.14.

Thanks for great data.

Jim said...

^^^ Anonymous, the returns to which you are referring are annualized returns, not average returns. If you are a long-term buy-and-hold investor, you should care about annualized returns, not average returns.

If the S&P 500 Index went up 25% one year and then down 25%, the next year, the average annual return over this period of time would be 0%. However, the annualized return over this two year period would be -3.175%. [In this case, the annualized return would be equal to (((1+.25)(1-.25))^(1/2)-1) or -3.175%.]

Unknown said...

this is great data,-Many thanks for the outstanding efforts. Now may i request/suggest to make one more chart to show average total return of 5, 10, 15 and 25 year from 1926 till end of 2012, also it should include worst and best 5, 10 15 and 25 year
thanks Raj

Unknown said...

this is great data,-Many thanks for the outstanding efforts. Now may i request/suggest to make one more chart to show average total return of 5, 10, 15 and 25 year from 1926 till end of 2012, also it should include worst and best 5, 10 15 and 25 year
thanks Raj

Colin said...

Hi Jim,

First, I don't know why this type of information isn't more readily available to the public, so thanks for doing the work.

Question for you and for all who care to weigh in: If I'm a buy and hold investor, and I have at least 25 yrs left before retirement, and I invest primarily in a low fee S&P 500 index fund, re-investing all dividends and gains until my retirement age is reached, would it be reasonable and prudent to plug 8%, 9%, and 10% into a retirement calculator in order to obtain a realistic picture of what my nest egg could be worth at retirement age? Of course, I would still need to account for inflation and taxes but it seems that method would give me a pretty good picture of what I could expect when the game is done.

What, if anything would I be overlooking by doing this?