Monday, August 23, 2010

Annualized S&P 500 Growth Rate

I talked before about the annualized inflation rate since 1913, and how this is a good number to use in modeling the future. This time, I'll be looking at the annualized return of the stock market as a representative of investments in general.

Once again, my efforts started by trying to find everything I needed online. I came much closer this time around than before. I found an excellent CAGR calculator for the S&P 500 going back to 1871. Again, this is good to get a final answer for a given time period, but I'd like the time period to be less arbitrary. The problem is that historic price data is readily available, but that doesn't include dividends. We really need data reflecting the total return seriously, visit this link - 44% of the total return is dividend reinvestment - amazing!). After a lot of searching for raw data, I found some detailed monthly data for the S&P 500 going back to 1970, much of which was reconstructed. While not raw, it's at least data!

The graph below (click for full size) shows the 1970-2009 data - individual monthly total returns, trailing 12-month total returns, trailing 20-year annualized total returns, and cumulative total returns since 01/1970. The overall total return from 1970-2009 was 9.44%-9.93% depending on what month you end on. The average 20-year annualized return was 13.31%, and the average 12-month return was 11.33%. It's not included in the graph or the table below, but the average 30-year annualized return over 1871-2009 was 9.36%, while the overall annualized return was 8.89% for that range. (NOTE: The average of a sliding window is not a great statistic - the time periods on each end are under-weighted. I include them because if any readers are like me, taking the average of a series of numbers is one of the first things you try to do. I am simply saving them a bit of work. ;)

For modeling my future investments, I use a more conservative 8% growth rate. However, I have a column in my spreadsheet that projects a 10% growth goal from when I first created it. Of course, the financial crisis and recession means I have a lot of catching up to do, even to my original 8% plan.

Display S&P 500 Data Table

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