S&P 500 real return since 2000
S&P 500 real return since 2000
I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%. That's not very good. How does this effect someone who was 50 years old in 2000 and was expecting their biggest growth in the last few years of their working lifetime. It seems it throws a huge monkey wrench into those plans. This makes me kind of nervous. I know there is nothing I can do but invest and stay the course, but what do y'all make of this. I think nominal return was around 3.75. Not losing money, but 1000 invested would be around 1800.
Re: S&P 500 real return since 2000
Including Dividends Reinvested?
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
Re: S&P 500 real return since 2000
https://www.portfoliovisualizer.com/bac ... entage=0.0
Yep - the CAGR was about 4% or about 1.5% real. However, that is for lump summing through two pretty bad bear markets. For somebody retiring with 100% equities - that would not be that great. However, if you were balanced with age in bonds (lets say 50% bonds), it would be a little different and of course if you DCA through a 401K for the 15 years and retired this year - the CAGR was about 7% nominal or 4.5% real - not earth-shattering but not as bad as the numbers listed in the OP.
DCA $1000 a year would be https://www.portfoliovisualizer.com/bac ... mount=1000
50% SP 500 and 50% TBM would be about 5% CAGR with 2.5% real return
https://www.portfoliovisualizer.com/bac ... mount=1000
I guess it highlights why to be balanced and the power of saving even when the market looks like it has not returned a lot over time, DCA over many price points can affect returns. JMO though...
Yep - the CAGR was about 4% or about 1.5% real. However, that is for lump summing through two pretty bad bear markets. For somebody retiring with 100% equities - that would not be that great. However, if you were balanced with age in bonds (lets say 50% bonds), it would be a little different and of course if you DCA through a 401K for the 15 years and retired this year - the CAGR was about 7% nominal or 4.5% real - not earth-shattering but not as bad as the numbers listed in the OP.
DCA $1000 a year would be https://www.portfoliovisualizer.com/bac ... mount=1000
50% SP 500 and 50% TBM would be about 5% CAGR with 2.5% real return
https://www.portfoliovisualizer.com/bac ... mount=1000
I guess it highlights why to be balanced and the power of saving even when the market looks like it has not returned a lot over time, DCA over many price points can affect returns. JMO though...
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Re: S&P 500 real return since 2000
Run the same numbers for Dec 4, 1987 through March 24, 2000. Sort of demonstrates the randomness inherent in investing. Imagine how great it would have been to retire in 1988.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. |
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Re: S&P 500 real return since 2000
The numbers I get are a little different, a hair over 2% real with dividends between March 2000 and April 2016. Maybe if you pick the right endpoints you end up at 1.66%. To be honest that's not even all that bad for a period that long. Much worse can happen.
In any case, anybody investing through to 2000 should have gotten lots and lots of returns (basically stealing returns from the future, so no real harm actually), and anybody putting in money at any point between 2000 and 2015 should have gotten a higher internal rate of return than that.
All in all, there can be times where the market screws you over but this is not particularly one of them. Now, if the endpoint were 2009 you'd feel differently.
In any case, anybody investing through to 2000 should have gotten lots and lots of returns (basically stealing returns from the future, so no real harm actually), and anybody putting in money at any point between 2000 and 2015 should have gotten a higher internal rate of return than that.
All in all, there can be times where the market screws you over but this is not particularly one of them. Now, if the endpoint were 2009 you'd feel differently.
Re: S&P 500 real return since 2000
Very true.TheTimeLord wrote:Run the same numbers for Dec 4, 1987 through March 24, 2000. Sort of demonstrates the randomness inherent in investing. Imagine how great it would have been to retire in 1988.
I have basically the same numbers as the OP. 2000 was a particularly poor start date for the stock market, although it was not unprecedented. Most people don't realize that stocks remained underwater for 13 straight years after that. Just looking at a single long-term average return hides a lot of information.
Re: S&P 500 real return since 2000
Mean reversion is an important principle to keep in mind.
Submit to the relentless rules of humble arithmetic and avoid the tyranny of compounding costs.
Re: S&P 500 real return since 2000
Hi.
For that hypothetical 50 year old in 2000 who was probably entering their peak earning and savings years, consider this post.
viewtopic.php?t=164411
Their final 15 years of retirement contributions would have earned salutary returns. Much nicer than the lump sum return.
For that hypothetical 50 year old in 2000 who was probably entering their peak earning and savings years, consider this post.
viewtopic.php?t=164411
Their final 15 years of retirement contributions would have earned salutary returns. Much nicer than the lump sum return.
"So, what would have been so terrible if I had a small fortune?"
Re: S&P 500 real return since 2000
The real return might be small but its certainly better than putting your money in a bank account or CD over the time periods.
Re: S&P 500 real return since 2000
Man these answers are why I spend so much time on the forum. I learn so much. That portfolio watch site is great. Thanks for all of the answers. I now understand that even if the market return is near 0 that a portfolio that mimics the market can still have a greater return due to asset allocation. I'm at 80/20 with 20% of stock int right now and am pretty comfortable with that. Thanks guys!!
Re: S&P 500 real return since 2000
Could be worseholley54 wrote:...I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%. That's not very good...
From March 2000 through April 2016 , I get roughly 4.6% nominal return and 2.4% real inflation adjusted using the Ibbotson Associates numbers, looking at total return (including dividends), and calling it 16.1 years in this CAGR calculator
Morningstar IA SBBI Chart
But that's still better than a 17 year period with 6.3% nominal return, and -0.3 real
Incidentally, there were no TIPS at that time, and nominal bonds wouldn't have saved someone from that horrible inflationary period. While bonds would have continued to dampen the volatility (and there was quite a bit of that), they didn't overcome the bite from inflation.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: S&P 500 real return since 2000
But over that period what if you just put your money in a stock portfolio consisting of JNJ, MCD, KO, PG, XOM, GE & MSFT? I have no idea what the answer is.
Re: S&P 500 real return since 2000
This would be interesting to me also. I'm sure it would be much more volatile but not sure on total return.RAchip wrote:But over that period what if you just put your money in a stock portfolio consisting of JNJ, MCD, KO, PG, XOM, GE & MSFT? I have no idea what the answer is.
Re: S&P 500 real return since 2000
Portfolio Visualizer is great for playing with scenarios like that.holley54 wrote:This would be interesting to me also. I'm sure it would be much more volatile but not sure on total return.RAchip wrote:But over that period what if you just put your money in a stock portfolio consisting of JNJ, MCD, KO, PG, XOM, GE & MSFT? I have no idea what the answer is.
I think it's unrealistic to pick stocks in the rear-view mirror. You're highly likely to choose stocks that are more prevalent now, than then, and to overlook companies that have gone under or just less prevalent now. I think owning something like the Dow 30 (DIA) is a fair proxy for the type of blue-chip stocks you seem to be looking at. The fact that this portfolio was under represented by financial/bank stocks was a good thing over the 2008-2009 financial crisis.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: S&P 500 real return since 2000
So in studying that website a bit can someone explain the difference between cagr and irr? There seems to be quite the difference in value between the two numbers. I thought they meant relatively the same thing.JoMoney wrote:Portfolio Visualizer is great for playing with scenarios like that.holley54 wrote:This would be interesting to me also. I'm sure it would be much more volatile but not sure on total return.RAchip wrote:But over that period what if you just put your money in a stock portfolio consisting of JNJ, MCD, KO, PG, XOM, GE & MSFT? I have no idea what the answer is.
I think it's unrealistic to pick stocks in the rear-view mirror. You're highly likely to choose stocks that are more prevalent now, than then, and to overlook companies that have gone under or just less prevalent now. I think owning something like the Dow 30 (DIA) is a fair proxy for the type of blue-chip stocks you seem to be looking at. The fact that this portfolio was under represented by financial/bank stocks was a good thing over the 2008-2009 financial crisis.
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Re: S&P 500 real return since 2000
Does this include dividends being re-invested?
John C. Bogle: “Simplicity is the master key to financial success."
Re: S&P 500 real return since 2000
Yes for the OP's post/comment...abuss368 wrote:Does this include dividends being re-invested?
Re: S&P 500 real return since 2000
CAGR is usually measuring the returns from time A to B, IRR is usually accounting for periodic additions or withdrawals over that period.holley54 wrote:...
So in studying that website a bit can someone explain the difference between cagr and irr? There seems to be quite the difference in value between the two numbers. I thought they meant relatively the same thing.
Someone who invested 'lump sum' in 2000 and withdrew it in 2016 might be interested in the CAGR over that period.
Someone who dollar cost averaged in each year (or took periodic withdrawals) between 2000 and 2016 would have a different result, and the IRR may be more pertinent.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Re: S&P 500 real return since 2000
JoMoney wrote:CAGR is usually measuring the returns from time A to B, IRR is usually accounting for periodic additions or withdrawals over that period.holley54 wrote:...
So in studying that website a bit can someone explain the difference between cagr and irr? There seems to be quite the difference in value between the two numbers. I thought they meant relatively the same thing.
Someone who invested 'lump sum' in 2000 and withdrew it in 2016 might be interested in the CAGR over that period.
Someone who dollar cost averaged in each year (or took periodic withdrawals) between 2000 and 2016 would have a different result, and the IRR may be more pertinent.
Thank you!
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Re: S&P 500 real return since 2000
Wow! This is one of the risks of investing in the equity markets.anil686 wrote:Yes for the OP's post/comment...abuss368 wrote:Does this include dividends being re-invested?
John C. Bogle: “Simplicity is the master key to financial success."
Re: S&P 500 real return since 2000
From 03/01/2000 through 04/30/2016, any lump sum investment in VFINX doubled in size. I wish it would have grown more, but it's one of the best options most of us have.
Re: S&P 500 real return since 2000
The problem I think a lot of people run into, is relatively speaking, just about any other investment someone might have considered would have performed better for several years following. Up until the past couple years, a money market fund would have been a better investment. Total Bond index still has had a better return if measured with that specific start. If that's the single reference point you focus on, "alternatives" like market timing, hedge funds, all sorts of stock picking strategies, "smart beta", etc... they all look good relative to buying and holding a simple broad market cap-weighted index from that particular point in time.pingo wrote:From 03/01/2000 through 04/30/2016, any lump sum investment in VFINX doubled in size. I wish it would have grown more, but it's one of the best options most of us have.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
- Will do good
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Re: S&P 500 real return since 2000
This will make me think about OMYholley54 wrote:I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%. That's not very good. How does this effect someone who was 50 years old in 2000 and was expecting their biggest growth in the last few years of their working lifetime. It seems it throws a huge monkey wrench into those plans. This makes me kind of nervous. I know there is nothing I can do but invest and stay the course, but what do y'all make of this. I think nominal return was around 3.75. Not losing money, but 1000 invested would be around 1800.
Re: S&P 500 real return since 2000
You invested every cent in 2000?holley54 wrote:I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%.
You didn't invest any money in 1985 or 1990 or 1995 or 2005 or 2010?
All your money was invested at a single point of time? 2000?
Because every cent invested in years OTHER than 2000 has made a lot more. Since I've invested in 30 different years, I've made a lot more than 1.66%.
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Re: S&P 500 real return since 2000
HomerJ, that's a really good point. However it would matter to the person who retired that year and add no more money since.HomerJ wrote:You invested every cent in 2000?holley54 wrote:I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%.
You didn't invest any money in 1985 or 1990 or 1995 or 2005 or 2010?
All your money was invested at a single point of time? 2000?
Because every cent invested in years OTHER than 2000 has made a lot more. Since I've invested in 30 different years, I've made a lot more than 1.66%.
Re: S&P 500 real return since 2000
I think it's dishonest to bemoan the fate of our year 2000 retiree without at least acknowledging their portfolio's real return in the years immediately prior to throwing in the towel:
1995 33.83%
1996 19.49%
1997 30.36%
1998 26.56%
1999 18.43%
1995 33.83%
1996 19.49%
1997 30.36%
1998 26.56%
1999 18.43%
Re: S&P 500 real return since 2000
We have people here who retired around 2000... At the highest valuations in U.S. history. And yet, most them still have more money than when they retired. I'd say that 1.66% REAL (5% nominal) annual returns from the absolute worst time in recent history to invest/retire is a pretty good result, not a red flag against investing in the stock market.Will do good wrote:HomerJ, that's a really good point. However it would matter to the person who retired that year and add no more money since.HomerJ wrote:You invested every cent in 2000?holley54 wrote:I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%.
You didn't invest any money in 1985 or 1990 or 1995 or 2005 or 2010?
All your money was invested at a single point of time? 2000?
Because every cent invested in years OTHER than 2000 has made a lot more. Since I've invested in 30 different years, I've made a lot more than 1.66%.
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Re: S&P 500 real return since 2000
If 2000 to 2016 weren't that great what does it say about predictions that the coming years won't yield very good investment returns? When do the good times roll?
Re: S&P 500 real return since 2000
It says absolutely nothing.TonyDAntonio wrote:If 2000 to 2016 weren't that great what does it say about predictions that the coming years won't yield very good investment returns?
As they say "Past performance is not indicative of future results".
Anyone can cherry-pick a few specific end dates in the past and worry that it's a predictor. Play around with those two particular end dates, move them in any direction, and you'll get vastly different results. Have fun with that, but don't worry that it actually means anything.
Re: S&P 500 real return since 2000
I didn't invest a cent in 2000. I'm only 29. This was just a topic of discussion. Trying to learn more is all.HomerJ wrote:You invested every cent in 2000?holley54 wrote:I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%.
You didn't invest any money in 1985 or 1990 or 1995 or 2005 or 2010?
All your money was invested at a single point of time? 2000?
Because every cent invested in years OTHER than 2000 has made a lot more. Since I've invested in 30 different years, I've made a lot more than 1.66%.
Re: S&P 500 real return since 2000
Well, I was trying to teach you something with my post above... I guess it wasn't very clear. My apologies for the silly tone.holley54 wrote:I didn't invest a cent in 2000. I'm only 29. This was just a topic of discussion. Trying to learn more is all.HomerJ wrote:You invested every cent in 2000?holley54 wrote:I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%.
You didn't invest any money in 1985 or 1990 or 1995 or 2005 or 2010?
All your money was invested at a single point of time? 2000?
Because every cent invested in years OTHER than 2000 has made a lot more. Since I've invested in 30 different years, I've made a lot more than 1.66%.
We invest every year. No one here saved cash for 20 years, and then invested every single cent in 2000 alone.
Let's say you invest every year for 20 years, and get 15-year returns of 8%, 11%, 9%, 10%, 7%, 7%, 8%, 9%, 8%, 10%, 9%, 10%, 7%, 9%, 5%, 6%, 8%, 9%, 10%, 7%.
Is it meaningful to say "Hey, look! One of those years I invested, I only got 5% returns over 15 years. I'm not sure about this stock market thing."
I submit that getting 5% nominal 15-year returns from the WORST year in modern history to invest is pretty good...
Be very careful looking at one set of dates in isolation. Especially if one of the dates chosen is a top or a bottom of a market.
Re: S&P 500 real return since 2000
Agree JoMoney. I actually bought GE and MSFT in the heady days of 1999-2000. Both cratered so badly shortly thereafter I couldn't hang on. Everyone talks about being a buy and hold investor, but when I owned individual stocks I was constantly wondering if they would recover, if the company was managed properly or doomed to failure. Should I sell or buy more? I got out of stocks, and crazy Janus funds and came over to Vanguard and sensible investing.JoMoney wrote:Portfolio Visualizer is great for playing with scenarios like that.holley54 wrote:This would be interesting to me also. I'm sure it would be much more volatile but not sure on total return.RAchip wrote:But over that period what if you just put your money in a stock portfolio consisting of JNJ, MCD, KO, PG, XOM, GE & MSFT? I have no idea what the answer is.
I think it's unrealistic to pick stocks in the rear-view mirror. You're highly likely to choose stocks that are more prevalent now, than then, and to overlook companies that have gone under or just less prevalent now. I think owning something like the Dow 30 (DIA) is a fair proxy for the type of blue-chip stocks you seem to be looking at. The fact that this portfolio was under represented by financial/bank stocks was a good thing over the 2008-2009 financial crisis.
Does portfoliovisualizer include dividends, btw?
Re: S&P 500 real return since 2000
Gotcha! Thanks for clarifying HomerJ. I understand what your saying now.HomerJ wrote:Well, I was trying to teach you something with my post above... I guess it wasn't very clear. My apologies for the silly tone.holley54 wrote:I didn't invest a cent in 2000. I'm only 29. This was just a topic of discussion. Trying to learn more is all.HomerJ wrote:You invested every cent in 2000?holley54 wrote:I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%.
You didn't invest any money in 1985 or 1990 or 1995 or 2005 or 2010?
All your money was invested at a single point of time? 2000?
Because every cent invested in years OTHER than 2000 has made a lot more. Since I've invested in 30 different years, I've made a lot more than 1.66%.
We invest every year. No one here saved cash for 20 years, and then invested every single cent in 2000 alone.
Let's say you invest every year for 20 years, and get 15-year returns of 8%, 11%, 9%, 10%, 7%, 7%, 8%, 9%, 8%, 10%, 9%, 10%, 7%, 9%, 5%, 6%, 8%, 9%, 10%, 7%.
Is it meaningful to say "Hey, look! One of those years I invested, I only got 5% returns over 15 years. I'm not sure about this stock market thing."
I submit that getting 5% nominal 15-year returns from the WORST year in modern history to invest is pretty good...
Be very careful looking at one set of dates in isolation. Especially if one of the dates chosen is a top or a bottom of a market.
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Re: S&P 500 real return since 2000
A financial concept that is often over-looked , likely because it is perceived as complex, but it really isn’t…holly54 wrote: " I'm not jumping ship, this is just for discussion. I was doing some research and saw that since March of 2000 through April 2016 the real return of the S&P was only 1.66%. That's not very good. How does this effect someone who was 50 years old in 2000 and was expecting their biggest growth in the last few years of their working lifetime. It seems it throws a huge monkey wrench into those plans. This makes me kind of nervous. I know there is nothing I can do but invest and stay the course, but what do y'all make of this. I think nominal return was around 3.75. Not losing money, but 1000 invested would be around 1800."
“If a buy-and-hold investor with no particular view about market conditions or future returns wishes to have a fairly predictable amount of wealth at some future date, that investor should hold a portfolio with a duration that is roughly equal to the investment horizon.”
The modified duration of the blue-chip S & P 500 index can be approximated from the price/dividend ratio. For the S&P 500 in 2000 the modified duration was about 60 years. The calculation for the Price /Dividend ratio on 1/1/2000 was …
= $ 1,426 / $23.62 (Source: multpl.com)
= 60 years
If in the year 2000, an investor wanted some degree of predictability around their final sum in at the end of 2015 (15 years) , and had settled upon the canonical 60% - S / 40% - B portfolio…
-Vanguard's Index 500 fund modified duration: 60 years
-Vanguard Total Bond Market duration : 5.8 years
-Cash has a duration of zero: 0.0 years
On 1/1/2000, the calculation for the duration of the canonical 60% stocks / 30% bonds / 10 % cash portfolio was:
= (0.6 x 60) + (0.3 x 5.8) + ( 0.1 x 0)
= 36 + 1.74 + 0
= 38 years
Take-away: If the 2000 lump sum investor’s timeline for needing to tap their money was 15 years, their starting portfolio with a duration of 38 years was mis-aligned. As we now know in retrospect, the stock-heavy investor was somewhat disappointed, as that portion of the portfolio delivered returns below historical averages.
Fast forward to today....
What is the modified duration of the S & P 500 now (as of 5-13-16) ?
= P/D
= $ 2,047 /$ 43.88
= 47 years
Here is today's duration of the 60% stocks / 30% bonds / 10% cash portfolio...
= (0.6 x 47) + (0.3 x 5.8) + (0.1 x 0)
= 30 years
Many of us perform annual portfolio re-balancing. As John Hussman advised in a past blog (link) , when “ Portfolio Re-balancing - Don't Ignore Duration.”
When do you plan to begin spending the first portion of your investment funds, i.e. bucket # 1 ? (i.e. what is your time horizon for the money invested in "bucket #1 ? ). Is it 30 years? For some degree of certainty, at your next re-balancing date, consider matching that portion of your portfolio's duration to the time horizon.
Hussman article: http://www.hussmanfunds.com/wmc/wmc090105.htm
“Everyone is a disciplined, long-term investor until the market goes down.” – Steve Forbes