Worried About Long-Term Low Returns?

Watching the events of the day, too many investors worry about the long-term impact of short-term events. Has the market experienced long periods of low or negative returns? Let's check the data.



Here are the S&P 500 returns for 1926-2004, shown in ten-year rolling periods (e.g. 1926-1935, 1927-1936, etc.). Of the 70 ten-year rolling periods, only one period (1929-1938) had annualized losses (-1% per year). Amazingly, fewer than 13% of the periods had annual returns of less than 6%. The large majority (73%) had annual returns of 8% or better.

What's to be learned? If we expect the future looks a lot like the past (wars, recessions, prosperity, technological change, social upheaval, etc.), then I expect a similar dispersion of future returns. But, hey, that's just my guess.

The other lesson is that investors with enough discipline to stick with the markets are rewarded in the end. The undisciplined investor is spooked by short-term events and doomsdayers. Long-term, diversified investing is the best strategy.