Annualized Returns for Stock Market Indices By Decade (1980s - Present)

In my previous post, I discussed annual stock market and bond market returns for various indices for the time period from 1980-2008. Viewing annual returns since 1980 can be very illuminating and show the impressive effects of annual compounding of investment returns over time. However, even more information may be gleaned by viewing index returns on a decade-by-decade basis.

The chart below (click on the chart for a larger view) illustrates decade-by-decade returns for various stock and bond indices during the 1980s, 1990s, and 2000s (through 2008). The chart below illuistrates 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 (the Morgan Stanley Capital International Index for the developed stock markets of Europe, Australasia, and the Far East ("MSCI EAFE index")), an index of bonds (Lehman Brothers Aggregate Bond Index ("LB Agg.")), and the Nasdaq Composite Index.

Only three of the indices tracked have provided positive returns for each decade since the 1980s: the Russell 2000 Value, Russell 2000, and LB Agg. The Russell 2000 Value provided annualized returns of 17.44% during the 1980s, 12.45% during the 1990s, and 6.98% so far in the 2000s.

As everyone now knows, there was a tremendous stock market bubble which accumulated throughout the 1990s. The Nasdaq Composite was one of the primary beneficiaries of the bubble valuations, rising a whopping annualized 24.5% throughout the 1990s, for a total return of about 794%. Such returns proved to be unsustainable, however, as the Nasdaq Composite has droppjavascript:void(0)ed a total of about 61% since 2000, for an annualized return during the 2000s (through 2008) of -10%.

The MSCI EAFE Index was also the beneficiary of a bubble, although it rose to lofty valuations during the Japan equity bubble of the 1980s. During the 1980s, the MSCI EAFE Index rose an impressive 630%, or about 22% on an annualized basis. Returns during the 1990s were far worse, with the MSCI EAFE Index rising only 96.99%, or about 7% per year. The MSCI has provided negative returns during the 2000s, dropping a total of 14.71%, or about 1.75% per year.

The S&P 500 Index provided strong and steady returns during the 1980s and 1990s until the U.S. stock market bubble burst in 2000. The S&P 500 Index returned about 403% during the 1980s and an additional 432% during the 1990s, for annualized returns during those decades of about 17.5% and 18.2%, respectively. The 2000s, however, have been far worse, with the index dropping 28% so far through 2008, for an annualized return of about -3.6%.

The returns shown in the chart above show the volatility that investors may face when chasing performance. The biggest winner of the 1990s (the MSCI EAFE Index) has lagged other indices since the 1990s, and the winners during the 1990s (e.g., the S&P 500 indices and the Nasdaq Composite) have substantially lagged during the 2000s (up through 2008). I can only speculate as to which indices will outperform during the coming decades. However, I would bet that Small Cap Value stocks will continue to outperform other indices over long periods of time.

1980 - 2008 Stock Market Returns for Various Indices

In 2007 and 2008, I posted charts of the annual stock market and bond market returns for various indices for the time periods from 1980-2006 and 1980-2007, 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 (Lehman Brothers Aggregate Bond Index ("LB Agg.")), and the Nasdaq Composite Index. I have updated the chart (click on the image for a larger view) to reflect returns for 2008.

2008 was an awful year for stock indices, providing the worst calendar year returns since the 1930s. Despite the horrible 2008 returns, all of the indices tracked in the chart below have provided returns far in excess of inflation since 1980 (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 2864%, which is an average annual return of about 12.40%. This is total return is especially impressive when one considers that Small Cap Value stocks lost over 28% in 2008. The 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.

The Russell 2000 Growth Index is the worst performer since 1980, providing a total return of just 582% over the time period, or about 6.85% per year. The returns for Small Cap Growth stocks have been very poor since the 1980s and I question whether a return of just 2-3% above inflation since the 1980s is an adequate return for the excess risk involved in holding Small Cap Value stocks.

The S&P 500 Index dropped 37% - the index had its worst calendar year return since it was created in 1957. Including the S&P 90 Index, the predecessor to the S&P 500 index, the last time that a diversified large cap U.S. index dropped this much was in 1934, when the S&P 90 dropped over 43%.

Tech stocks also took a beating in 2008, as evidenced by the 40% drop in the Nasdaq Composite Index. That is the worst calendar year performance for the Nasdaq Composite since it was created in 1971.

International stocks were the worst performers of all of the indices I tracked last year, with the MSCI EAFE Index dropping over 43% after several years of impressive returns. The MSCI EAFE Index broke its 6-year winning streak over the S&P 500 Index in 2008. However, I suspect that international stocks will soon outperform U.S. stocks again, given that the U.S. runs an enormous trade deficit with the rest of the world and the U.S. dollar will inevitably weaken.

The only index providing a positive return was the LB Agg.**, which tracks U.S. government, corporate, and mortgage-backed securities with maturities of at least one year. The LB Agg. rose about 5.24% in 2008. Since 1980, the LB Agg. has provided annualized returns of about 8.88%, despite exhibiting far less volatility than the other stock market indices tracked in the chart below.


* I acquired most of the returns in this chart from old versions of the Callan "Periodic Table" of investment returns.

** The LB Agg. bong index has since been renamed the Barclays Capital Aggregate Bond Index ("BC Agg.").

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

Updated "Periodic Table" of Equity Style Investment Returns Through 2008

An updated version of the Callan "Periodic Table" of equity style investment returns from 1989-2008 is posted below. (Click on the image below to see a larger version of the Periodic Table.) This Periodic Table illustrates calendar year returns for several indices, including the S&P 500, S&P/Citigroup 500 Growth, S&P 500/Citigroup 500 Value, Russell 2000, Russell 2000 Value, Russell 2000 Growth, MSCI EAFE, BC Agg bond, and NAREIT Equity REIT.

This chart was originally posted on the website for Callan Associates.