Wednesday, April 1, 2009

Stock Market Annual Performance since 1929 (bar chart)

In this post, we graph total stock market returns by year -- going all the way back to 1929. Total return includes dividend income as well as capital appreciation; the previous post in the stock market performance history series considered only closing prices/ capital appreciation. (Note: if you are interested specifically in 1929-32, see The 1929 Crash.)

Dow Index Annual Performance Graph: 1929 - 2012


DJIA (Dow Jones Index) long-term annual stock market performance 1929 - 2012
Dow Yearly Total Return 1929 - 2012

Note: For additional 2012 results, see 2012 stock market performance, and Total Returns from 19xx - 2012.

The bar chart above (click on image to enlarge it) shows the DJIA (Dow Jones Industrial Average) total yearly return for close to 100 years. (To see a stacked bar chart showing the contribution that earnings growth, dividends, etc. made, by year, see The Extraordinary Impact of P/E Ratios.) A regular line graph of this data seemed useless to me; I think the bar/column chart works better. What can we learn from this graph? Initially, about all I could conclude from this extensive performance history was:
  • Stock market returns vary a lot from year to year
  • The market goes up a lot more often than it goes down, but you can sometimes lose money
  • The down years are often isolated, "one-off" events, and usually smaller than the up years -- kinda like speed bumps
  • While most down years seem to result in "minimal" losses, a few resulted in substantial losses of more than 20%


Dow Yearly Return Frequency Chart

(histograms are through 2008)

Histogram showing stock market (Dow) yearly performance
Dow Yearly Return Frequency
In the histogram above (click to enlarge), the label below the column is the maximum of the range. For example, we see that there were no years with losses greater than 50%, and 5 years with losses between 50% and 20%. For me, the histogram provides a more useful view of this data; the variability from year to year is still pretty mind-boggling. However, now I can see that:
  • Stock market returns are negative about 20 (or 25%) of the 79 years; so, about 75% of the years have positive returns. There are relatively few bars with less than 0% return, but quite a few above 0% -- sometimes way above 0%.
  • Most of the time (about 45 of the 79 years), the returns have been between 0% and 30%

What's not to like? It looks like when you lose, you lose a little, but when you win you can win a lot!

In addition, you could make the argument that investing is not a one year deal, so it makes more sense to look at performance history over the longer term. Here's the same histogram as above, but with 10-year returns instead of yearly returns.

Dow 10-Year Annualized Return Frequency Chart


Histogram showing stock market (Dow) 10-year performance
Dow 10-Year Return Frequency

Note that this is the same data, with the same return ranges along the x-axis (horizontal axis). However, in this case, instead of 79 data points, there are only 69 data points -- 1929-1939, 1930-1940, ... 1998-2008. The apparent message here is that, over 10 year periods:
  • A little less than half the time your 10-year return will be between 0% & 10% per year
  • A little more than half the time you'll make between 10 & 20% per year
  • People have not lost money when holding for 10 years

Conclusions


Again, what's not to like? Stock market history seems to suggest that worrying about the year-to-year variability (let alone worrying about monthly, weekly, or day-to-day variability) is a fool's errand. You could conclude from looking at the above graphs that investing in the stock market can be a very good thing indeed; I think that's true. You might also conclude that it's virtually impossible to lose money in the stock market over the long term. I'd hold off on that one. You might want to review, for example, the graph of rolling 10-year stock market returns. Equally importantly, take a look at The Variability of 10-Year Stock Market Returns in Dollars to see what impact these apparently small differences in 10-year annualized returns can have on the value of your retirement portfolio.

Notes: The above charts are based on DJIA (Dow Jones Industrial Average) data from my Stock Market Analysis Model/Spreadsheet. Histograms are through 2008. Results would be conceptually the same if we used S&P 500 data. If you have trouble downloading the Excel spreadsheet, see this post.


Related Materials

More on the variability of stock market returns
Range of Stock Market Returns from 1-100 Years: graph of best & worst past returns for 1, 2, 3, ... 100 year periods.
25 Best & Worst Yearly Stock Market Returns: a closer look at 1-year returns
Range of Stock Market Returns in DOLLARS: A critical, and surprising, perspective.
Rolling 10-Year Stock Market Returns: all 10-year returns, not just best & worst.
Variability of 10-Year Stock Market Returns, in Dollars: a closer look at variability of returns over 10-year periods.

And the causes of that variability
The Extraordinary Impact of P/E Ratios the contribution to yearly return made by earnings, dividends and change in p/e.
P/E Ratio Impact on Future Returns: Returns of purchases made when p/e is high compared to returns of low p/e purchases, in dollars.
Initial P/E Ratio vs. 10-Year Returns: Shows the 10-year returns that resulted from purchases at each initial P/E ratio; demonstrates importance of P/E at time of purchase.

Additional long-term investment performance history
Dow 100 year stock market history chart: Graph of Dow index performance since around 1900.
100 Years of Treasury Bond Interest Rate History
Stock Market Average Annual Return Since 19xx: Investor returns for the most recent 5, 10, 20, etc. years.

Copyright © 2009. Last modified: 1/4/2013

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DJIA (Dow Jones Index) long-term annual stock market performance 1929 - 2010

9 comments:

  1. Very interesting views of the data. I think the long term view is best, but it must be balanced against needs for funds as you approach retirement. As people approach retirement, they need to get more and more conservative in their investments. This is part of the issue today since there are so many baby boomers now entering the retirement phase of their life. But one thing I have learned the hard way is if you get caught in a down market, it is best to just ride it out. These data support that view. However, bear in mind that today's economy is far different than it has been in the past. We have very little manufacturing base in the USA anymore. As the standard warning reads "Past performance is no guarantee of future results."

    ReplyDelete
  2. Anon,
    Thanks for the comment.

    I agree that for most people it is appropriate to invest more conservatively as you approach and enter retirement. I'll have more to say about that later when I start posting about the implications of some of these results on retirement planning.

    I also probably agree with your thoughts on riding it out -- IF you have a well constructed retirement plan, and your asset allocation has been thoroughly thought through, and both are appropriate given your age, risk tolerance, financial resources, etc. However, I would shy away from making a blanket statement that it's the right strategy for ALL people in ALL down markets. I think it depends on one's circumstances. That's one reason I virtually never make recommendations in my blog.

    ReplyDelete
  3. OK, interesting study, but did you consider that 30% of your population is retiring in the next 10 years?? If 30% of your population is going conservative and the other 70% are struggling to make ends meet, who will replace the growth of the baby boomer's from 1980 to 1998 market growth? Is it our 1.5 children?

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  4. What is the overall average since 1929?

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  5. See the Average Annual Return Since 19xx post. That post tracks return through the end of the most recent end-of-year.

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  6. What does each month look like over the years what does the market look like on average in september,
    what doest the market look like on average in september during a down year.

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  7. Interesting questions. Unfortunately, my primary data is yearly data, so I haven't looked at long-term performance on a monthly basis.

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  8. Overall, your work is fascinating. This is my frist time to the site.

    Have you posted interest rate along with stock for the past 100 years? Also, do you have most updated NPE? I think your current post has up to 2008. How is the current NPE comparing to history.

    ReplyDelete
    Replies
    1. Unk,
      If you look in the sidebar list of most popular posts all-time, you will see both a 100-year stock market chart and a 100-year interest rate chart. However, if the question is whether I have a chart that combines both, I do not (though, you could easily construct one from the two spreadsheets if you like). I have thought about doing that, but so far have not.

      Remember, the nature of my normalized p/e is such that it cannot be calculated until several years after the fact (see About P/E and Normalized P/E). Given that, I suspect what you're seeing is the latest available; if not, let me know which post or spreadsheet you're looking at and I'll try to update.

      Thanks for stopping by.

      Delete

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