Dow Index Annual Performance Graph: 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)
|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
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
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 MaterialsMore 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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