There’s a reason financial advisors tell you to ignore the noise. Follow the stock market closely enough and you can easily fall into a dizzying sea of numbers and narratives. Stocks are undervalued! No, everything is expensive! Wait, here comes inflation!
Today’s darlings (ahem, Tesla) can turn into tomorrow’s ugly ducklings as the new, new thing promises to revolutionize an entire industry, again. Individual investors who try to time the parade of disruption often fall into the nasty habit of buying high and selling low.
We believe some perspective is in order.
After a quick look at the market’s near-term trends, we’ll take you on a deep dive into the performance of stocks and bonds since major inflection points like the Great Depression, Black Monday, the apex of the Dotcom bubble, the Great Recession and the onset of Covid-19.
The best cure for an investor’s present-day performance anxieties could be a history lesson. It can provide deeper insight into the vicissitudes of the market—look back on the six graphs below anytime you instinctively reach for the “sell” button.
How Stocks Have Performed Recently
Stocks suffered some notable dips last month, with the dropping 1.2% between April 16 and April 22 as investors’ risk appetite soured over President Joe Biden’s plan to raise capital gains rates on the rich and collect unrealized gains at their death.
Market observers watched anxiously as the Federal Reserve reiterated its forecast for a temporary rise in inflation over the next few months but expects price gains to be moderate over the longer haul.
Stocks have gained almost 12% year-to-date as of May 10. Despite the lackluster April jobs report, companies are beating earnings expectations at an impressive rate. In addition, Covid-19 cases and deaths continue to trend from their recent January highs, which has led state governments to ease social distancing restrictions.
While there is more work to do, said John Rosen, adjunct professor of economics at the University of New Haven, you should be pretty optimistic about the state of the economy today.
“We’re going to bounce back from Covid,” said Rosen. “Economic activity is beginning to grind forward.”
Inflation in Focus
Still, inflation remains a concern. “There is a case to be pessimistic about inflation,” Rosen said. “But inflation has been devilishly hard to predict for the past two decades.”
You may recall the doomsday predictions of runaway inflation as the economy exited the Great Recession after President Barack Obama signed a $800 billion stimulus and the Fed began pumping reserves into the financial system at an unprecedented clip.
A group of high-profile money managers wrote an open letter in 2010 to then-Fed Chair Ben Bernanke, warning that the Fed’s behavior would “risk currency debasement and inflation.”
In fact, inflation spent the vast majority of the next decade—according to the Fed’s preferred measure, Core PCE—well below its target of 2% annual growth. Not only were there no 1970s-style price increases, but the Fed also couldn’t even achieve the inflation rate it so badly wanted.
“For the past 10 years or so since the end of the financial crisis, we have seen a very low inflation rate environment,” said David Frederick, director of client success and advice at First Bank and an adjunct economics professor at Washington University in St. Louis. “To see it come back to approaching normal is pretty healthy.”
The key is whether or not the Fed can corral inflation and limit price growth to about 2.2% to 2.4% for 2021. To that end, the poor April jobs report, by easing investor concern that the economy is overheating and higher rates are nigh, was (ironically) helpful.
Historical Returns for Stocks and Bonds
When it comes to the market, the only constant is change. Each recession inevitably ends with a recovery, which leads to another rebound, which always ends in a crash. That’s the nature of the economic cycle. What’s important to keep in mind is that the dips tend to be much briefer than the booms, and over the long term, markets always trend upwards.
The following six graphs illustrate this tendency. We’ll look at how stocks, bonds and balanced funds—which typically allocate 60% to stocks and 40% to bonds—have performed over the past 90 years. Collectively, they attest to the roller coaster that investors need to be ready to ride.
Remember these charts when you start to lose your nerve.
The first five charts detail the average annual return from each asset class while the final chart illustrates how much money you’d have today if you invested $10,000 and held steady through five of the worst markets in U.S. history. The power of compounding returns cannot be overstated.
Note: Performance is calculated with dividends reinvested, which can substantially improve long-term investing returns.
Historical Stock Returns Since the Great Depression
The worst economic collapse in modern American history began in October 1929 when investors fled for the hills and paper fortunes evaporated into the air. The Great Depression would follow, with stocks losing up to 80% of their pre-crash values. By some metrics, it would be years before stocks, or Americans themselves, would recover.
But recover they did. It would have taken about seven years for you to fully recoup your money if you invested in a broad U.S. stock index fund at the market top, once you account for the staggering deflation that occurred as Americans congregated in soup lines.
In the years since, stocks have averaged 9.59% annual returns. That’s more than 40% more than bonds’ average annual returns, and over 10% higher than a balanced portfolio of both stocks and bonds.
Historical Stock Returns Since Black Monday
October can be a miserable month for investors. On Monday, October 19, 1987, the Dow Jones Industrial Average collapsed 23%, the biggest one-day drop in history. Imagine waking up with $1 million in the bank and going to sleep that night $230,000 poorer.
The Dow would take about four years to recover, adjusting for inflation, and the nation didn’t collapse into a depression, as some had feared. The cause of the sudden collapse is still debated, though Nobel Prize-winning economist Robert J. Shiller believes it had more to do with psychological and sociological reasons—investors simply expected a crash at some point due to hazy fears about indebtedness levels, among other things—than anything concrete.
Since the aptly nicknamed Black Monday, investment returns have been strong, beating even returns since the lows of the Great Depression. Stocks have performed about 20% better than bonds, averaging annual returns of 10.34%. A balanced portfolio of stocks and bonds isn’t far behind, with only approximately a 4% lag, reinforcing that you don’t have to be 100% in equities to achieve substantial returns over time.
Historical Stock Returns Since The Dot Com Bubble
Whenever a market observer wants to make a point about a particular wacky current development—from GameStop to SPACs to NFTs—they invariably harken back to the turn of the century when any company could slap a “.com” to the end of their name and bump up their market valuations by billions.
The Nasdaq Composite, which remains stuffed with technology firms, hit its all-time high in March 2000, before it dramatically fell and would not recover for the better part of 15 years.
Though investment performance overall was slightly lower since the dot com era, it still vastly exceeded inflation rates. Stocks still saw almost 10% higher average annual returns than bonds, but a balanced portfolio actually outperformed pure stock holdings for the first time in our analysis.
This demonstrates the importance of having a diversified portfolio that contains a mix of stocks and bonds. While historically stocks have seen substantially greater returns than bonds, this isn’t always the case, particularly in the short term. Holding both stocks and bonds lets you benefit from the growth of each and helps you stack the deck in your favor, no matter what economic circumstances develop.
Historical Stock Returns Since The Great Recession
The worst economic downturn since the Great Depression, the Great Recession was precipitated by a housing crisis that was made exponentially worse by complicated, dangerous derivative contracts.
It would be years before stocks recovered, though once the upswing took hold it grew into the longest bull market in history. Average annual stock performance ticked up closer to its long-term historical average and returned to edging out balanced portfolios by about 10%. A slow domestic recovery, and generally weak global economic growth, made bonds less appealing to investors.
Historical Stock Returns Since Covid-19
If the previous four charts haven’t convinced you of the value of sticking with your investments, surely this one will.
Think back to March 2020: The novel coronavirus was tearing across the globe, businesses were shuttering, folks were barely leaving their homes, millions lost their jobs and it seemed as if the economy was going to melt down. No one knew when stocks would recover, but almost no one predicted they’d end the year 16% higher than they started, even after falling 34% in a matter of weeks.
But that’s what happened. After trillions spent on a slew of relief packages, the Fed reopening the Great Recession playbook and the development of highly successful vaccines, by the early summer investors were optimistic the economy would recover, and they continue to be so today.
It’s important to view this last data point with context, though. It only accounts for about one year of returns while the others in this set cover at least a decade. Though stocks can offer impressive returns, the current performance is more an exception than the rule, and years like these help contribute to the approximate 10% long-term annual average returns stocks enjoy. In addition, bond performance has taken a hit as the Fed continues to push cheap money to stimulate the economy, and investors are weary of inflation, which dampens interest in fixed income.
While this has kneecapped diversified portfolio returns in the short term, very few people who would have a 60/40 allocation, like in a balanced portfolio, would have just started investing within the time period depicted here.
Financial advisors generally recommend this kind of asset allocation for those nearing retirement, meaning those with a balanced portfolio would have benefited from hopefully decades of only slightly lagging bond performance compared to stocks instead of this year’s chasm. And, if history is any indication, the discrepancies in performance between assets may even out over time.
How Much You’d Have Today If You Invested $10,000
Though these points of reference are helpful, percentages can feel so impersonal. To get a better sense of just what all these stock market gyrations would mean for you, we put it in terms of dollars. One interesting note to today’s stock obsessives trading non-stop on Robinhood: check out the returns since the market highs of 2000.
You’ll notice that a balanced fund ends up providing you with more money than stocks if you first made an investment 21 years. Which is to say, events have a way of surprising us.
Ultimately, though, what’s important to keep in mind is that these numbers represent what you would have earned if you stayed invested. Just as it’s almost impossible to pick single stocks that will do extremely well, it’s similarly almost impossible to pick when to buy and sell investments so you only experience the market’s highs—and not its lows. Remaining invested and not panicking during market dips is the best way to position yourself for this kind of growth.
FAQs
What is the historical performance of stocks? ›
The average stock market return is about 10% per year for nearly the last century, as measured by the S&P 500 index.
What is the historical performance of bonds? ›The historical returns for stocks is between 8% – 10% since 1926. The historical returns for bonds is between 4% – 6% since 1926. Both asset classes have performed well over time.
What do you think is riskier the stock or the bond explain your answer? ›In general, stocks are riskier than bonds, simply due to the fact that they offer no guaranteed returns to the investor, unlike bonds, which offer fairly reliable returns through coupon payments.
How do you calculate historical stock return? ›Calculating the historical return is done by subtracting the most recent price from the oldest price and divide the result by the oldest price.
What is the best performing stock in history? ›- Coca-Cola. (NASDAQ: KO) ...
- Altria. (NASDAQ: MO) ...
- Amazon.com. (NASDAQ: AMZN) ...
- Celgene. (NASDAQ: CELG) ...
- Apple. (NASDAQ: AAPL) ...
- Alphabet. (NASDAQ:GOOG) ...
- Gilead Sciences. (NASDAQ: GILD) ...
- Microsoft. (NASDAQ: MSFT)
Why is stock market analysis important? The stock market is the main source of the companies that want to raise funds for their expansion. It can also help a company to launch new products and pay its debt. Any changes in the stock market have an effect on a corporation's finances and even the global economy.
What is the historical correlation between stocks and bonds? ›The relationship between stock and bond returns is a fundamental determinant of risk in traditional portfolios. For the first two decades of the 21st century, the stock–bond correlation was consistently negative and investors were largely able to rely on their bond investments for protection when equities sold off.
What is the average return on stocks and bonds? ›Key return on investment statistics
A good place to start is looking at the past decade of returns on some of the most common investments: Average annual return on stocks: 13.8 percent. Average annual return on international stocks: 5.8 percent. Average annual return on bonds: 1.6 percent.
A performance bond effectively guarantees the satisfactory completion of a project by a Contractor. The bond provides a written guarantee to a contracting company (the beneficiary) against the Contractor (the principal) defaulting on any of its contractual obligations.
What are the pros and cons of investing in bonds? ›Pros: I bonds come with a high interest rate during inflationary periods, they're low-risk, and they help protect against inflation. Cons: Rates are variable, there's a lockup period and early withdrawal penalty, and there's a limit to how much you can invest.
What is the biggest risk in bond investing? ›
Since the price of a bond changes as with the changes in the market interest rates, the risks that an investor gets to face is that the price of a bond will drop in case the market interest rates rise. This risk is known as interest rate risk and is the most common risk faced by investors in the bond market.
Why are bonds losing money right now? ›One key relationship explains why bonds did so badly in 2022: Bond prices and interest rates move in opposite directions. “The Federal Reserve raised rates more than they have in 40 years. That caused massive losses inside of bonds,” says Robert Gilliland, managing director at Concenture Wealth Management.
How do you calculate stock performance? ›You'll need the original purchase price and the current value of your stock in order to make the calculation. Subtract the total purchase price from the current price of the stock then divide that by the original purchase price and multiply that figure by 100. This gives you the total percentage change.
How do you calculate the expected return of a stock from historical data in Excel? ›- In the first row, enter column labels: ...
- In the second row, enter your investment name in B2, followed by its potential gains and the probability of each gain in columns C2 – E2. ...
- In F2, enter the formula = (B2*C2)+(D2*E2)
- Take the selling price and subtract the initial purchase price. ...
- Take the gain or loss from the investment and divide it by the original amount or purchase price of the investment.
- Finally, multiply the result by 100 to arrive at the percentage change in the investment.
Despite what you might read on social media, stocks that never go down don't exist. If you want a completely safe investment with no chance you'll lose money, Treasury securities or certificates of deposit (CDs) may be your best bet.
What are three of the top performing stocks? ›Best stocks by one-year performance
Steel Dynamics Inc. Constellation Energy Corp. Marathon Petroleum Corp. Valero Energy Corp.
- Moderna, Inc. (NASDAQ:MRNA)
- Microsoft Corporation (NASDAQ:MSFT)
- T-Mobile US, Inc. (NASDAQ:TMUS)
- UnitedHealth Group Incorporated (NYSE:UNH)
- Lam Research Corporation (NASDAQ:LRCX)
- ServiceNow, Inc. (NYSE:NOW)
Stock Price Performance means a percentage increase in the value of the common stock of the Company or an Index Peer Company for a Measurement Period, determined by dividing: (a) the difference obtained by subtracting the Beginning Price from the Average Stock Price by (b) the Beginning Price. Sample 1.
How can stock performance be improved? ›- Price action—The stock will hopefully rise in value.
- Dividend—The fee a company pays you in exchange for using your money.
- Call revenue—The money an investor pays you when you sell a covered call against your stock.
What does the stock price performance tell you? ›
The importance of stock valuation allows an investor to a certain degree to determine whether a stock is undervalued, overvalued, or trading at a fair market price. This valuation helps prevent an investor from losing their investment and ideally generate a profit.
What is the relationship between stocks and bonds? ›Bond prices and stocks are generally correlated to one another. When bond prices begin to fall, stocks will eventually follow suit and head down as well. The rationale stems from the fact that bonds are generally considered less risky investments than stocks.
What happens to stocks and bonds when interest rates rise? ›“If interest rates move higher, stock investors become more reluctant to bid up stock prices because the value of future earnings looks less attractive versus bonds that pay more competitive yields today,” says Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management.
What factors affect the correlation between stocks and bonds? ›Beyond the immediate impact of inflation and interest rates, uncertainty over their future trajectories may also influence the correlation between stocks and bonds.
What is the safest investment right now? ›- High-yield savings accounts.
- Series I savings bonds.
- Short-term certificates of deposit.
- Money market funds.
- Treasury bills, notes, bonds and TIPS.
- Corporate bonds.
- Dividend-paying stocks.
- Preferred stocks.
S&P 500 5 Year Return is at 46.29%, compared to 44.37% last month and 85.05% last year. This is higher than the long term average of 44.24%.
Is 7% return on investment realistic? ›According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks. This is also about the average annual return of the S&P 500, accounting for inflation. Because this is an average, some years your return may be higher; some years they may be lower.
What affects bond performance? ›Apart from interest rate movements, there are three other key factors that can affect the performance of a bond: market conditions, the age of a bond and its rating.
What is an example of a performance bond? ›For example, a client issues a contractor a performance bond. If the contractor is not able to follow the agreed specifications in constructing the building, the client is given monetary compensation for the losses and damages the contractor may have caused.
What are three reasons why people invest in bonds? ›- They provide a predictable income stream. Typically, bonds pay interest twice a year.
- If the bonds are held to maturity, bondholders get back the entire principal, so bonds are a way to preserve capital while investing.
- Bonds can help offset exposure to more volatile stock holdings.
What are the three major risks when investing in bonds? ›
Risk Considerations: The primary risks associated with corporate bonds are credit risk, interest rate risk, and market risk. In addition, some corporate bonds can be called for redemption by the issuer and have their principal repaid prior to the maturity date.
Are bonds safer than stocks? ›With risk comes reward.
Bonds are safer for a reason⎯ you can expect a lower return on your investment. Stocks, on the other hand, typically combine a certain amount of unpredictability in the short-term, with the potential for a better return on your investment.
However, in return for the risk, stockholders have a greater potential return. Bonds are more beneficial for investors who want less exposure to risk but still want to receive a return. Fixed-income investments are much less volatile than stocks, and also much less risky.
Are bonds safe if the market crashes? ›Key Takeaways
Bonds are considered less volatile and safer investments than stocks but they can still crash.
These are the risks of holding bonds: Risk #1: When interest rates fall, bond prices rise. Risk #2: Having to reinvest proceeds at a lower rate than what the funds were previously earning. Risk #3: When inflation increases dramatically, bonds can have a negative rate of return.
Why not buy bonds? ›Risks to Investing In Bonds
While bonds are considered safer investments, they're not risk-free. The biggest risk to bond investors is that the issuer won't make timely payments, known as credit risk. The lower a bond's credit rating, the higher its credit risk. A bond's default risk can change over its lifetime.
Key Takeaways. Bond yields are likely to remain relatively high at least through the first half of 2023. Higher yields enable bonds to once again play their historical role as sources of reliable, low-risk income for investors who buy and hold them to maturity.
What are the worst investments during inflation? ›The worst investment to put money into, during periods of inflation, are long-term, fixed-rate interest-bearing investments. These can include any interest-bearing debt securities that pay fixed rates, but especially those with maturities of 10 years or longer.
Can bonds become worthless? ›Bonds are often touted as less risky than stocks—and for the most part, they are—but that does not mean you cannot lose money owning bonds. Bond prices decline when interest rates rise, when the issuer experiences a negative credit event, or as market liquidity dries up.
What is the average return on bonds historical? ›The historical returns for bonds is between 4% – 6% since 1926. Both asset classes have performed well over time. However, going forward, many investment houses are expecting lower returns.
What is the difference between historical and expected rate of return? ›
Historical returns are realized returns, such as those reported by Ibbotson Associates. Expected returns are returns expected to occur in the future. They are the most likely returns for the future, although they may not actually be realized because of risk.
What is historical return of stock market? ›The index acts as a benchmark of the performance of the U.S. stock market overall, dating back to the 1920s. The index has returned a historic annualized average return of around 11.88% since its 1957 inception through the end of 2021.
How much will $1000 be worth in 20 years? ›How much will an investment of $1,000 be worth in the future? At the end of 20 years, your savings will have grown to $3,207. You will have earned in $2,207 in interest.
How much money can you make from stocks in a month? ›A reward-to-risk ratio of 1.5 is fairly conservative and reflective of the opportunities that occur each day in the stock market. Making 5% to 15% or more per month is possible, but it isn't easy—even though the numbers can make it look that way.
What is the best way to value a stock? ›The most common way to value a stock is to compute the company's price-to-earnings (P/E) ratio. The P/E ratio equals the company's stock price divided by its most recently reported earnings per share (EPS). A low P/E ratio implies that an investor buying the stock is receiving an attractive amount of value.
What is the average stock market return last 30 years? ›| Period | Annualized Return (Nominal) | $1 Becomes... (Adjusted for Inflation) |
|---|---|---|
| 10 years (2012-2021) | 14.8% | $3.06 |
| 30 years (1992-2021) | 9.9% | $5.65 |
| 50 years (1972-2021) | 9.4% | $6.88 |
Calculating Average Historical Returns
Using a simple mean computation, the average historical return can be found by summing up all the returns and dividing the sum by the number of years (or periods). The calculation can be longer and more tedious, depending on the number of time periods used – e.g., 5 years or more.
The historical average yearly return of the S&P 500 is 10.283% over the last 50 years, as of end of January 2023. This assumes dividends are reinvested. Adjusted for inflation, the 50-year average return (including dividends) is 6.068%.
What is the average rate of return on stocks over the last 10 years? ›| Period | Average stock market return | Average stock market return adjusted for inflation |
|---|---|---|
| 5 years (2017 to 2021) | 17.04% | 13.64% |
| 10 years (2012 to 2021) | 14.83% | 12.37% |
| 20 years (2002 to 2021) | 8.91% | 6.40% |
| 30 years (1992 to 2021) | 9.89% | 7.31% |
The index acts as a benchmark of the performance of the U.S. stock market overall, dating back to the 1920s. The index has returned a historic annualized average return of around 11.88% since its 1957 inception through the end of 2021.
What is the average stock market return over the last 15 years? ›
The average return of the stock market over the long term is just above 10%, as measured by the S&P 500 index. Over the past decade, through to March 31, 2022, the annualized performance of the S&P 500 was 14.5%.
Has the stock market ever lost money over a 10-year period? ›Looking at how frequently the stock market loses purchasing power, we see losses about 1/3 of single years, 1/4 for rolling 5-year periods, 1/8 for 10-year periods, and not a single losing 20-year period.
How much would $8000 invested in the S&P 500 in 1980 be worth today? ›The PCE Price Index changed by 2.63% per year on average between 1980 and 2023. The total PCE inflation between these dates was 205.72%. In 1980, PCE inflation was 10.77%. This means that the PCE Index equates $8,000 in 1980 with $24,457.34 in 2023, a difference of $16,457.34.
How many years will it take for the stock market to recover? ›After ending the year down nearly 20%, the S&P 500 index is in the green for 2023. And the Nasdaq Composite — which plunged 33% in 2022 — is up more than 4.5% this year. So when will stocks fully recover from the bear market? Many experts appear optimistic it will happen in 2023.
What is the average stock market return over 5 years? ›The S&P 500 index is a basket of 500 large US stocks, weighted by market cap, and is the most widely followed index representing the US stock market. S&P 500 5 Year Return is at 46.29%, compared to 44.37% last month and 85.05% last year. This is higher than the long term average of 44.24%.
What is a good average annual return? ›Most investors would view an average annual rate of return of 10% or more as a good ROI for long-term investments in the stock market. However, keep in mind that this is an average. Some years will deliver lower returns -- perhaps even negative returns.
What percentage is a good return? ›What Is a Good ROI? According to conventional wisdom, an annual ROI of approximately 7% or greater is considered a good ROI for an investment in stocks.
How much should a 70 year old have in the stock market? ›If you're 70, you should keep 30% of your portfolio in stocks. However, with Americans living longer and longer, many financial planners are now recommending that the rule should be closer to 110 or 120 minus your age.
How much does the US stock market return in 100 years? ›Stock market returns since 1900
This is a return on investment of 9,789,727.58%, or 9.79% per year. This lump-sum investment beats inflation during this period for an inflation-adjusted return of about 274,775.66% cumulatively, or 6.65% per year.
10% Return for S&P 500 a Real Possibility by End of 2023
And in today's market, with its newfound emphasis on fundamentals, earnings really matter. Short of a recession — a very real possibility — consensus estimates are for about 5% earnings growth (opens in new tab) for S&P 500 companies in 2023.