What Stock Returns Look Like in 20 Years
Posted on: March 8, 2016
Recently, I did a long horizon return study based on 100 years of stock market data and inflation from 1916 to 2015.
The study assumes a 20-year investment horizon. If your primary reason for investment is for retirement security, this is the horizon that should apply.
In the study, I looked at rolling 20-year stock returns, inflations and (after inflation) real stock returns. I present the results in the table below. The first and second columns are the beginning and ending years of the 20- year period. The third column shows the nominal growth of $1 invested in S&P 500 in the corresponding period. The fourth column shows the shrinkage of $1 due to inflation in the corresponding period. The fifth column shows the real (after inflation) growth of $1 invested in S&P 500.
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During the last 100 years, inflation (cash is losing value) is the norm, while deflation (cash is getting more valuable) only occurs during the Great Depression.
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In the 20-year span that has the worst inflation (between 1968 and 1987,) cash loses 71% of its value.In the medium case, cash loses 45% of its value in 20 years.
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During the last 100 years, stocks always make money in any given 20-year period. Even in the worst 20 years (between 1929 and 1948) which includes the Great Depression, you get $1.95 for $1 invested in stocks. (If you use my dividend strategy, you could do a lot better.)
- In the medium scenario, stocks give you 4 times real return; In the best scenario, stocks give you 10 times real return and in the worst scenario, stocks give you only 1.17 times real return. Since nobody invests a lump sum and takes out a lump sum, it’s the medium or average scenario that is most applicable to an investor.
The biggest takeaway from this study is this: stocks always beat cash if you have a 20-year investment horizon. Cash may not fall like stocks in the short term, but in the long term, it is far more riskier!
| Begin Yr | End Yr | $1 grwth | $1 infltn | $1 real grwth |
| 1916 | 1935 | $4.36 | $0.75 | $3.25 |
| 1917 | 1936 | $5.44 | $0.83 | $4.51 |
| 1918 | 1937 | $4.93 | $0.95 | $4.69 |
| 1919 | 1938 | $4.74 | $1.18 | $5.59 |
| 1920 | 1939 | $4.06 | $1.35 | $5.48 |
| 1921 | 1940 | $4.48 | $1.38 | $6.16 |
| 1922 | 1941 | $3.53 | $1.12 | $3.94 |
| 1923 | 1942 | $3.20 | $1.00 | $3.20 |
| 1924 | 1943 | $3.93 | $0.99 | $3.91 |
| 1925 | 1944 | $3.76 | $0.97 | $3.65 |
| 1926 | 1945 | $4.02 | $0.98 | $3.95 |
| 1927 | 1946 | $3.23 | $0.82 | $2.66 |
| 1928 | 1947 | $2.50 | $0.74 | $1.85 |
| 1929 | 1948 | $1.95 | $0.71 | $1.39 |
| 1930 | 1949 | $2.35 | $0.73 | $1.72 |
| 1931 | 1950 | $3.92 | $0.64 | $2.52 |
| 1932 | 1951 | $8.25 | $0.55 | $4.54 |
| 1933 | 1952 | $11.15 | $0.49 | $5.47 |
| 1934 | 1953 | $7.37 | $0.49 | $3.62 |
| 1935 | 1954 | $11.13 | $0.50 | $5.59 |
| 1936 | 1955 | $10.26 | $0.51 | $5.28 |
| 1937 | 1956 | $7.99 | $0.51 | $4.05 |
| 1938 | 1957 | $10.46 | $0.51 | $5.30 |
| 1939 | 1958 | $11.96 | $0.48 | $5.79 |
| 1940 | 1959 | $13.30 | $0.48 | $6.33 |
| 1941 | 1960 | $14.61 | $0.47 | $6.91 |
| 1942 | 1961 | $21.09 | $0.52 | $10.90 |
| 1943 | 1962 | $16.50 | $0.56 | $9.17 |
| 1944 | 1963 | $15.86 | $0.56 | $8.93 |
| 1945 | 1964 | $15.45 | $0.57 | $8.81 |
| 1946 | 1965 | $12.65 | $0.57 | $7.24 |
| 1947 | 1966 | $12.71 | $0.65 | $8.30 |
| 1948 | 1967 | $14.63 | $0.69 | $10.10 |
| 1949 | 1968 | $15.68 | $0.68 | $10.65 |
| 1950 | 1969 | $11.93 | $0.63 | $7.47 |
| 1951 | 1970 | $9.51 | $0.63 | $5.97 |
| 1952 | 1971 | $8.59 | $0.64 | $5.54 |
| 1953 | 1972 | $8.91 | $0.63 | $5.60 |
| 1954 | 1973 | $7.38 | $0.58 | $4.30 |
| 1955 | 1974 | $3.74 | $0.51 | $1.92 |
| 1956 | 1975 | $3.83 | $0.48 | $1.85 |
| 1957 | 1976 | $4.43 | $0.47 | $2.10 |
| 1958 | 1977 | $4.59 | $0.46 | $2.10 |
| 1959 | 1978 | $3.61 | $0.43 | $1.54 |
| 1960 | 1979 | $3.75 | $0.38 | $1.44 |
| 1961 | 1980 | $4.88 | $0.35 | $1.69 |
| 1962 | 1981 | $3.67 | $0.32 | $1.17 |
| 1963 | 1982 | $4.81 | $0.31 | $1.50 |
| 1964 | 1983 | $4.84 | $0.31 | $1.48 |
| 1965 | 1984 | $4.35 | $0.30 | $1.29 |
| 1966 | 1985 | $5.06 | $0.29 | $1.47 |
| 1967 | 1986 | $6.83 | $0.30 | $2.03 |
| 1968 | 1987 | $5.68 | $0.29 | $1.67 |
| 1969 | 1988 | $5.87 | $0.29 | $1.73 |
| 1970 | 1989 | $8.62 | $0.30 | $2.58 |
| 1971 | 1990 | $8.24 | $0.30 | $2.45 |
| 1972 | 1991 | $8.85 | $0.30 | $2.64 |
| 1973 | 1992 | $8.39 | $0.30 | $2.51 |
| 1974 | 1993 | $11.03 | $0.32 | $3.49 |
| 1975 | 1994 | $14.87 | $0.35 | $5.15 |
| 1976 | 1995 | $14.90 | $0.36 | $5.39 |
| 1977 | 1996 | $14.99 | $0.37 | $5.50 |
| 1978 | 1997 | $20.97 | $0.38 | $8.07 |
| 1979 | 1998 | $24.37 | $0.41 | $10.07 |
| 1980 | 1999 | $25.08 | $0.46 | $11.43 |
| 1981 | 2000 | $18.25 | $0.50 | $9.05 |
| 1982 | 2001 | $16.29 | $0.53 | $8.67 |
| 1983 | 2002 | $11.02 | $0.54 | $5.95 |
| 1984 | 2003 | $10.94 | $0.55 | $6.01 |
| 1985 | 2004 | $11.79 | $0.55 | $6.52 |
| 1986 | 2005 | $9.65 | $0.56 | $5.36 |
| 1987 | 2006 | $8.90 | $0.55 | $4.87 |
| 1988 | 2007 | $9.42 | $0.55 | $5.18 |
| 1989 | 2008 | $4.86 | $0.57 | $2.78 |
| 1990 | 2009 | $4.82 | $0.58 | $2.81 |
| 1991 | 2010 | $5.61 | $0.61 | $3.43 |
| 1992 | 2011 | $4.71 | $0.61 | $2.88 |
| 1993 | 2012 | $4.77 | $0.62 | $2.95 |
| 1994 | 2013 | $5.63 | $0.63 | $3.52 |
| 1995 | 2014 | $6.49 | $0.64 | $4.14 |
| 1996 | 2015 | $4.80 | $0.65 | $3.11 |
| medium | value | $7.38 | $0.55 | $4.14 |
Schedule a Discovery review with me, or get my white paper for free: The Informed Investor: 5 Key Concepts for Financial Success.
The Investment Scientist 
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