Kevin B. Spires, CFA, FRM
Over the long haul, Stocks tend to beat Bonds. Using Dr. Robert Shiller's Irrational Exuberance data set, I calculate the long term returns of the S&P 500 and the 10YR Treasury over the time period of 12/31/1871 to 12/31/2011 - a total of 140 years. Click on the full piece...
Why would one do such a thing as calculate historical returns? With apologies to Mark Twain... While history may not repeat itself, it often rhymes. Past Returns can be an important guide in determining the range of possibilities for future returns. Over what promises to be a lengthy series of research pieces, I will tease out the most important components of future returns by decomposing historical returns. In this first part, I will just present what those historical returns have been.
Over the long haul, Stocks tend to beat Bonds. Using Dr. Robert Shiller's Irrational Exuberance data set, I calculate the long term returns of the S&P 500 and the 10YR Treasury over the time period of 12/31/1871 to 12/31/2011 - a total of 140 years. Click on the full piece...
Why would one do such a thing as calculate historical returns? With apologies to Mark Twain... While history may not repeat itself, it often rhymes. Past Returns can be an important guide in determining the range of possibilities for future returns. Over what promises to be a lengthy series of research pieces, I will tease out the most important components of future returns by decomposing historical returns. In this first part, I will just present what those historical returns have been.
Using the data from Dr. Shiller's spreadsheet, over that whole time period, the S&P 500 has had an average annual geometric return of 8.81% with an average real geometric return of 6.59%. The 10 Year Treasury Note has had an average annual geometric return of 4.95% and 2.81% on an inflation adjusted basis. The average inflation rate over the time period was 2.079%.
As many smart people have noted before, with such a large average return advantage, stocks tend to have a smaller worst case loss over longer time periods.
It is also interesting to see how many of the worst periods of Equity and Bond performance took place during periods of rising inflation. Looking at the chart below, you can see how rising inflation leads to poor bond market returns.
As many smart people have noted before, with such a large average return advantage, stocks tend to have a smaller worst case loss over longer time periods.
It is also interesting to see how many of the worst periods of Equity and Bond performance took place during periods of rising inflation. Looking at the chart below, you can see how rising inflation leads to poor bond market returns.
Rising inflation led to poor returns in the bond market after World Wars I & II and during the 1970's.
In Part II of the Recalculating Your Retirement, I will break out the various components of long term market returns.
What do you think?
In Part II of the Recalculating Your Retirement, I will break out the various components of long term market returns.
What do you think?
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