Posted this research to another board I frequent and thought some here might get some use out of it since stocks/equities are a part of everyone's investments on some level (at least I would hope)...
So I found the following link which displays the yearly dividend adjusted S&P500 returns for the last 140 years.:
CAGR of the Stock Market: Annualized Returns of the S&P 500
The link at the bottom shows where the data came from: http://www.econ.yale.edu/~shiller/data.htm
Maybe someone can chime in on the reliability of this data... I know some here like Zee do similar studies and I've often wondered where they get their data.
So anyways, I was bored today and threw together a program to play around with these numbers. I also added to them the inflation index that runs back to 1914.
My first idea was to look at the best/worst rolling returns from all 1 to 30 year periods. Not many surprises there:
Best was 1924-1928 CAGR 29.3%
Worst was 1928-1932 CAGR -11.5%
Best was 1949-1958 CAGR 20.1%
Worst was 1999-2008 CAGR -1.5
Best was 1980-1999 CAGR 18.0%
Worst was 1929-1948 CAGR 3.1%
No 15 year period in history had a negative return (the 14 years following 1929 were just barely under 0%)
Then I tried the same thing with the Inflation Adjusted data (1914-2011):
5-Year Inflation Adj:
Best was 1924-1928 CAGR 29.1%
Worst was 1916-1920 CAGR -13.8%
10-Year Inflation Adj:
Best was 1949-1958 CAGR 18.1%
Worst was 1999-2008 CAGR -4.4
20-Year Inflation Adj:
Best was 1980-1999 CAGR 13.6%
Worst was 1962-1981 CAGR 0.8%
No 18 year period had a negative return (the 17 years following 1965 were just barely under 0% after adjusting for inflation)
Clearly the last decade has been on the low side as far as returns. So next I decided to look up if any other periods in history were as bad or worse than our last decade and if so how did the decade that followed do:
First, ignoring inflation (1871-2011)...
Our last 10-years (2002-20011) had a CAGR of 1.4%. My program only found 4 (out of 130) rolling 10 year periods that did as bad or worse then that (1929,1930,1931,1966) prior to 2000. The next 10 years following those 4 points had an average CAGR of 10.1%... obviously with a lot of overlap from the 1931-1938 time frame
expanding this a little to get more data points I just looked for rolling 10 year periods at 4% or worse and got a lot more hits (years ending in: 1891, 1894, 1896, 1897, 1898, 1915, 1921, 1933, 1938, 1939, 1940, 1941, 1975, 1976, 1978, 1979)
The 10 years following all of those periods averaged a CAGR of 11.6%
I also ran the same test accounting for inflation but since this is getting a little long I'll leave out the boring data. It found 7 rolling 10 year periods that did as bad as the inflation adjusted one we just ended. Those other 7 all had a 10.1% CAGR (after inflation) in the next 10 years.
There are a lot of reasons to think that the next 10 years are going to be gloomy... with all that is going on in this country right now. However, historically speaking... the next 10 years 'should' average a 9-13% CAGR above inflation (12-17% actual return) if history really repeats itself... History also shows that the longer this near 0% market return continues (currently we're at about 12 years) the larger the pop on the other side will be. I'm guessing the late teens and early 20's are going to have some very bullish years similar to what we saw in the mid 90s.
I'll look closer at the 5, 7, 15, 20 periods that look similar to the one we're currently in and see if they tell the same kind of story.