What is the average annual return for the S&P 500?

Investing, Mutual Funds
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July 2016
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Very interesting question. It depends on what time period is used. For example, the average annual return from August 1982 to March 2000 was 12.2%. That was a long secular bull market. From March 2000 July 2016 the return is less than 3%. If you look at the secular bull markets since 1900 to the end of 2000, it seems like the average return has increased for each successive secular bull, but the time has been shorter. Take for example the 1941 to 1966 time the S&P increased approximately 10 fold in 25 years. The secular bull from 1982 to 2000 was an increase of 10 fold in 18 years. The question is whether we entered a new long-term secular bull market in 2010 or 2011 and how long will it last. I believe we did and the duration will be less than 18 years.

By the way, 10% will double in 7 years, not 10.

There is one other factor to consider in all this. Things are changing ever more rapidly. The companies that made up the S&P 500 in 1920 had an average life of 70 years before they died (think Eastman Kodak, Woolworth, Union Carbide, etc.). Today the average life of a company in the S&P 500 is less than 20 years and is approaching 15 years.

Let me ask you a question. If you started with a penny and each time you received twice what you had the day before, how much money would you have at the end of 30 days? Take a guess before you read further.



You would have over $10 million at the end of 30 days. But, 1/2 of that came the last day. 75% came the last two days. 90% came the last 4 days. The curve in the beginning looked like a flat line. It is only when the curve turns sharply upward that you realize it is exponential.

Is the S&P going to look like an exponentially increasing curve? I think an argument can be made it is showing that characteristic. And the speed of turnover seems to validate that.

While many market pundits are publicizing a view that returns are going to be significantly lower than history, I believe they are going to be shocked with what the returns will actually be. The danger is investors who buy into the view of lower returns. Instead of firing their advisor for lousy results they will keep the advisor because the so-called experts said to expect low returns.


April 2015