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Tuesday, March 17, 2009

Average Stock Market Return Since 19xx

Stock Market Long-Term Average Annual Rate of Return
(e.g., since 1929; past 1, 5, 10, 20 ... years.)


What is the long-term performance history of the stock market? Throughout stock market history, the average yearly return for periods of 25 years or longer has been around 9-10%. Here we mean total return -- i.e., including dividends. Following are the results for some periods of particular interest; results are through year-end 2012.

Average Stock Market Return per year: Last 5, 10, 20 ... Years

  • The long-term, more than 100-year performance: Since 1900 (end-of-year 1899), through 2012, I estimate the average total return/year of the DJIA (Dow Jones Industrial Average)  was approximately 9.4%  -- 4.8% in price appreciation, plus approx 4.6% in dividends. (Some numbers may not add up due to rounding.)
  • Since 1929 (year-end 1928 -- i.e., before the crash), through 2012, the return was 8.8% (4.6%, plus 4.2%) [note: see The 1929 Stock Market Crash]
  • Since end-of-year 1932 (i.e., after the crash): 11.1% (7.0%, plus 4.2%)
  • The average annual stock market return for the past twenty-five calendar years (since 1987) was 10.6% (7.9%, plus 2.7%)  The market was up over 40% before the October 19, "Black Monday," crash. After a significant recovery, the Dow actually closed up 6% for the year.
  • Stock market returns for the last 20 years (since 1992): 9.6% (7.1%, plus 2.4%) In the middle of one of the longest bull markets in history. [see below for additional 20-year periods] 
  • Returns since 1999 (13 years) -- the dot-com bubble year-end peak: 3.4% (1.0%, plus 2.4%).
  • Returns for the last 10 years (since 2002): 7.2% (4.6%, plus 2.6%) Year-end trough after the dot-com bubble. [see below for additional 10-year periods]
  • For the last 5 years (since 2007), 2.6% (-0.2%, plus 2.8%) Year-end peak of housing bubble.
  • Since 2008 year-end trough after the housing bubble: 13.4% (10.5%, plus 2.9%)
  • For 2012 the stock market (Dow/DJIA) total return was 10.1% (7.3% plus 2.9%)
    • 2012 year-end dividend yield was 2.7%
See also March 2013 Stock Market Performance, and 2012 Stock Market Performance: End-of-Year Update.



Note: For graphs of stock market performance over the long-term, see below:

The above results are for specific periods of special interest. Many readers find it helpful to also look at broader collections of data such as:

Long-Term Stock Market Performance, by Year

100 Years of Stock Market Closing Prices (log graph).
Stock Market Returns by Year: bar chart of total returns (i.e., incl dividends).
Dow Price/Earnings Ratio History since 1929 - Yearly Graph
Dow Dividend Yield & Price/Dividend History - Yearly Graph

Graphs Showing the Range/Variability of Returns Even Over Long Periods

Best & Worst Returns for 1-100 Year Holding Periods (graph of best & worst past returns for 1,2,3 ... 100-year periods),
Dow Rolling 10-Year Returns (graph showing all 10-year returns -- 1900-1910, 1901-1911 ... )
Dow Rolling 20-Year Returns (graph showing all 20-year returns -- 1900-1920, 1901-1921 ... )

Insight Into Factors That Impact Returns

Just 2%/Year in Expenses Could Reduce Your Retirement Portfolio by 50%!: why seemingly small expense levels can have large impacts.
Rolling Returns vs P/E Ratio Graph: Rolling returns graph combined with p/e graph to show P/E at beginning of each 10/20-year period.
Starting P/E Ratio vs. 10-Year Returns: Shows the 10-year returns that result from each initial P/E ratio. A classic way of investigating the relationship between P/E ratio and subsequent returns.
Dow P/E Ratio Impact on Future Returns in Dollars: Returns of purchases made when p/e is high compared to returns of low p/e purchases; the difference it makes in 10 years in dollars.
The Extraordinary Impact of P/E Ratio graphic demonstration of the impact of p/e on short-term (1-year) stock market performance.
Key Contributors to Long-Term Stock Market Performance shows dividends and earnings growth are key determinants of long-term stock market performance.

Some Additional 100-Year Posts

100 Years of Treasury Bond Interest Rate History: U.S. interest rate history.
100 Years of Inflation History: Overview of the impact of inflation on stocks, bonds, housing....

Projecting Future Stock Market Returns

The 10-Year Stock Market Projection

Notes re Data

In all cases above, the returns are from year-end to year-end. In addition, by "stock market" I mean the DJIA (Dow Jones Industrial Average). The results would typically be slightly higher for the S&P 500.  Returns are compounded annually; compounding more frequently would result in slightly higher returns; dividends prior to 1929 have been estimated based upon another stock market index. To calculate the return for periods not listed above, e.g. 1999-2002, see my Dow Compound Growth Rate Calculator.

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See the sidebar on the left and the menu bar at the top for Top 10 All-Time (with thumbnail graphics & snippets of text), & lists of popular posts by category.

Copyright © 2012.                        Last modified: 3/30/2013

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31 comments:

  1. When you say "the yearly return from 1900 to 2008" do you mean Jan 1, 1900, through Dec 31, 2008?

    ReplyDelete
  2. Mark,
    Actually, all these results are year-end to year-end. However, thanks for pointing out that in that case I probably should have calculated from 1/1/1900 (12/31/1899). Luckily, the results are the same -- 9.3%% (the composition is the same as well).

    Note that my total return results prior to 1929 are estimates since I've had to estimate dividends.

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  3. I am considering my portfolio strategy as I move from employment to retirement and find your graphs and analyses very helpful. I stumbled on your site looking for historic data on dividend performance (versus market growth returns). I plan to invest that portion of my portfolio which stays in equities in firms who have had proven dividend records over the decades. A novice in investment, I am recognizing the fact that market price and dividends often have only a marginal relationship. Some stocks may be very volatile in price, yet have an unbroken record of paying increasing dividends without fail since the early 1900s.

    Any suggestions for further reading besides the current Kiplinger's Retirement Report, which names a few such firms??

    ReplyDelete
  4. Anon,
    Thanks for stopping by. Glad to hear that you're finding my analysis useful.

    In recent decades, investors have placed more emphasis on capital gains than dividends. However, I think the pendulum is swinging back and dividends are starting to get their customary (and deserved) attention. Unfortunately, even so, I'm drawing a blank trying to come up with additional reading that focuses specifically on dividends. The books in the "investing" section of My Favorite Personal Finance Books all deal with the importance of dividends to some extent, but stop short of recommending specific firms.

    If I think of something later, I'll post an update here. Meanwhile, if other readers have suggestions in this area feel free to chime in.

    Al

    ReplyDelete
  5. Al, I need some assisstance please. I tried downloading the spreadsheet but it didn't work for me. What would the annualized return be for the Dow from September of 1993 to December of 2008, also from September of 1993 to May of 2009. I would really appreciate any help you could give me. Thanks.

    ReplyDelete
  6. Anon,
    I need some help too. Can you give me more info on what you mean by "it didn't work for me"? That way, maybe I can fix it.

    Remember, my model only deals with year year-end data. Best I can do is year-end '93 to year-end '08. I get 22.1%/year. Closing price went from 3754 to 9181 -- 19.6%/year. Dividends contributed another 2.5%/year.

    I hope that helps.

    ReplyDelete
  7. Here is a comment I received via e-mail.
    -------------------------
    The following data is from is from your blog page:
    http://observationsandnotes.blogspot.com/2009/03/average-annual-stock-market-return.html

    “Following are the results for several periods of particular interest:
    The yearly return from 1900 to 2008 was 9.3% (4.6% price appreciation, plus 4.7% in dividends)”

    Would you please tell me the stock index data this represents? I assume it is not the DJI since the Model data for the Dow does not go back this far

    Thanks
    Henry

    ReplyDelete
  8. Henry,
    Thanks for bringing up this important point.

    As I say in the notes at the top of the model (spreadsheet), I took the DJIA closing prices through 1989 from Barron's Finance & Investment Handbook, Third Edition; I took the remaining data from whatever source I could find -- most often Barron's. It's all entered into a spreadsheet that I created initially in the early or mid 1990s.

    I still haven't found a source for Dow earnings and dividends prior to 1929. (If anyone knows a good source, please let me know.) That's why for most of my graphs and analysis, I only go back to 1929 unless I'm only looking at prices; and why I didn't include earnings & dividends for those years in the spreadsheet.

    However, there are times when I'd really like to go back further. In those cases, for now, I have had to estimate DJIA earnings and dividends prior to 1929. To do this, I used Robert Shiller's "S&P" data -- which, in turn, is based upon Cowles and Associated data for dates prior to 1926. The conversion factors used were the average ratio of Dow earnings and dividends to Shiller's S&P earnings and dividends between 1929 and 1942. The actual multipliers used were 10.21 for dividends, and 9.27 for earnings. I have been keeping this data in my personal version of the spreadsheet, but have not added to the published version because I keep hoping I can find an official source.

    When my results are based upon earnings or dividends prior to 1929, I generally add a note pointing out that some of the data is estimated. I forgot to do that in this case, but did so this morning.

    Since I am primarily interested in the macro view, the "big picture," the results are accurate enough for my purposes. However, it's worth reminding readers so that they can make their own judgments regarding suitability for their purposes.

    Thanks for reminding me -- and for reading.
    Al

    FYI, Shiller's data is available at http://www.irrationalexuberance.com/

    ReplyDelete
  9. Al, I too like Anonymous am retiring and your analysis has helped me immensely re-inforce what my investment strategies will be. Thank you. It is nice to know that there are intelligent inciteful people willing to share their knowledge with the rest of us. Lee Robinson

    ReplyDelete
  10. Lee,

    Thanks for the nice words. Good to hear that the material has been helpful. I've just started to add some posts specifically about retirement planning (see the "retirement planning" label in the sidebar). I'll add additional ones from time to time. You may find some of those interesting as well.

    Good luck in your retirement.
    Al

    ReplyDelete
  11. Your analysis is based on all the stocks. However, no one can hold all the stocks at the same time even for a day, forget such a long period. Hence, your analysis is misleading and may cause people to lose money.

    ReplyDelete
  12. Hello,

    I was wondering where I can find the annual returns since 1987 to 2009 for the following stocks: IBM, Microsoft, Oracle and EMC? I am hoping to find a site that easily presents the answer.

    Best Regards,

    Joe

    ReplyDelete
  13. Joe,
    Try Morningstar.com or finance.yahoo.com
    Both have IBM and MSFT. I expect they'll have the others as well.

    ReplyDelete
  14. So, if my portfolio has sat idle/inactive for ten years, dividends would be paid annually and admin. fees charged; otherwise, the value of the stocks would be whatever they are today?

    ReplyDelete
  15. The 10-year calculation assumes an investor bought the Dow index at the end of 2000 and sold at the end of 2010, reinvesting all dividends each year (so, the investor would end with more shares than he started with). All calculations like these are hypothetical; they assume no commissions/fees, and no taxes.

    ReplyDelete
  16. Is the average stock market return calculated with real or nominal prices? If it's nominal prices than the return for the last 5 years was actually below 0% - so you lost money investing in the stock market.

    ReplyDelete
    Replies
    1. The 2.3% 5-year return is the nominal return -- virtually the same as inflation over that same period. So the real return was zero.

      Delete
    2. According to http://inflationdata.com/inflation/inflation_rate/long_term_inflation.asp
      the average inflation for the USA economy since 1913 was 3,43%, so actually the real stock market return over the century was around 5,8%. That means I should save up way more than I thought to life from my savings :-(

      Delete
  17. That was a good return average sometimes the return average of stock market specially this year is below average because of global crisis.

    ReplyDelete
  18. I invested 65000 in 1997 in my partners stock fund, then removed 20000 in 2000...with average returns what would you say the worth is today (I do not know the total value of the account at time of initial deposit)

    ReplyDelete
    Replies
    1. Anon,
      Sorry I don't have time to do this calculation for you. However, see http://observationsandnotes.blogspot.com/2011/08/stock-market-dow-growth-calculator.html
      Just break the calculation into two parts -- 1997-2000, then 2000-present.
      Good luck.

      Delete
  19. Hi Al
    I'm 63 years old and planning retirement in 3 years, in my porfolio I have $300,000 in a Money MKT account that nowady it hardly has any return, so I'm cosidering a variable annuity with the objective of life time income from what I have read you have to be careful with this type of annuity due to fees, but in general would this be a good strategy to consider?

    ReplyDelete
    Replies
    1. Sorry, but this blog doesn't really do advice per se. For one thing, to give advice, I'd want to know a lot more about your situation. I will say, though, that in my own personal finances I have preferred immediate annuities to variable annuities. More on those in a post coming soon.

      Delete
    2. High yielding stocks better than annuity, especially at present with low interest rates. Stocks preserve capital and provide a growing income. Look for at least ten well diversified companies with good yield and well covered dividend. Companies tend to increase dividend over time, often bigger than inflation.

      Delete
    3. I agree, high yielding stocks can be a valuable component of a retirement portfolio (including mine). However, be aware that they are also currently expensive -- for the same reason that annuities are (because interest rates are low).

      Delete
  20. hey al im 17 and wondering what to invest in i learned about stocks in my high school course personal finance and i wanna invest now ive followed the dave ramsy steps i have my emergency fund and ive paid for my car please help

    ReplyDelete
    Replies
    1. Anon,
      Unfortunately, this site is not really about giving investment advice. My orientation is not to tell you what you should do, but to share my data, tools and analysis with readers so that they can do their own analysis and make their own decisions.

      However, thanks for helping me to realize that I need to make that clearer in the First-time-reader FAQs (frequently asked questions). In addition, I'm considering a future post to do a better job of at least pointing readers like you to some helpful resources.

      Thanks for stopping by.

      Delete
  21. Has anybody looked at the historical rate of return since the invention of publicly traded equity markets? Has it accelerated over time?

    ReplyDelete
  22. For annual total returns for all S&P 100 companies for the past ten years, check: http://marketcapitalizations.com/historical-data/annual-total-returns/

    ReplyDelete

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