After my book review of “The New Retirement“, regular reader GatesVP decided to debunk the conclusions that the author made with statistics that he has found.  I took the bait and jumped into the conversation claiming that over the long term, equities will beat inflation.

What what is long term?  20 years?  30 years?  With this curiosity, I did some research on the net on historic market returns over specified periods.

Using the calculators from Money Chimp which takes returns from the S&P 500 over the past 50 years, I took the compounded annual rates of returns (CAGR) over various intervals.  I’ve also included the average inflation rate over the same period (also provided on Money Chimp).  All returns include dividends.

Lets take a look at two different investment horizons, 20 years and 30 years, both starting at 1950.

20 Year Investment Horizon

Years CAGR% CAGR After Inflation% Years CAGR% CAGR After Inflation%
1950-1970 12.59 9.82 1970-1990 10.48 4.01
1951-1971 11.80 9.19 1971-1991 11.68 5.26
1952-1972 11.66 9.18 1972-1992 11.36 4.98
1953-1973 9.98 5.10 1973-1993 10.95 4.63
1954-1974 8.44 5.10 1974-1994 11.86 5.77
1955-1975 7.86 4.16 1975-1995 15.19 9.39
1956-1976 7.70 3.80 1976-1996 14.59 9.00
1957-1977 7.00 2.94 1977-1997 15.01 9.56
1958-1978 7.78 3.42 1978-1998 16.81 11.53
1959-1979 6.84 1.99 1979-1999 17.53 12.54
1960-1980 7.68 2.30 1980-2000 16.09 11.64
1961-1981 7.46 1.74 1981-2001 13.91 10.08
1962-1982 7.15 1.30 1982-2002 12.84 9.38
1963-1983 8.66 2.61 1983-2003 13.19 9.81
1964-1984 7.91 1.79 1984-2004 12.65 9.32
1965-1985 8.53 2.24 1985-2005 12.60 9.29
1966-1986 8.82 2.55 1986-2006 11.92 8.70
1967-1987 9.65 3.29 1987-2007 11.30 7.95
1968-1988 9.32 2.91 1988-2008 8.64 5.58
1969-1989 10.19 3.74 1989-2009 9.26 6.26
1990-2010 8.54 5.72
1991-2011 8.82 6.15
1992-2012 8.19 5.60
1993-2013 9.26 6.71

I was actually quite surprised at the 20 year numbers as I was doing my calculations as the 20 year periods between 1959 and 1989 had negative returns after inflation.  However, the 20 year number look pretty good between 1975-2007.

It seems that moneychimp has made some changes to their algorithm so I’ve adjusted the table to reflect.  The new calculations show that over any 20 year period, the markets have beaten inflation.  However, the 20 year periods between 1959 and 1986 only returned in the 2% range after inflation.

30 Year Investment Horizon

Years CAGR% CAGR After Inflation% Years CAGR% CAGR After Inflation%
1950-1980 11.15 6.60 1970-2000 12.61 7.19
1951-1981 9.97 5.37 1971-2001 12.03 6.77
1952-1982 9.93 5.40 1972-2002 10.66 5.50
1953-1983 10.07 5.43 1973-2003 10.94 5.81
1954-1984 10.29 5.54 1974-2004 11.87 6.88
1955-1985 9.73 4.86 1975-2005 13.13 8.37
1956-1986 9.48 4.59 1976-2006 12.52 7.93
1957-1987 9.46 4.52 1977-2007 11.95 7.41
1958-1988 10.32 5.30 1978-2008 10.59 6.33
1959-1989 10.04 4.93 1979-2009 11.52 7.43
1960-1990 9.54 4.32 1980-2010 11.40 7.69
1961-1991 10.50 5.17 1981-2011 10.46 7.09
1962-1992 9.88 4.51 1982-2012 11.19 8.03
1963-1993 10.55 5.10 1983-2013 11.50 8.42
1964-1994 9.88 4.42
1965-1995 10.46 4.93
1966-1996 10.78 5.19
1967-1997 12.19 6.58
1968-1998 12.32 6.75
1969-1999 12.64 7.12

Looking over the 30 year investment periods, it seems that dating all the back to 1950, equities always came out ahead well of inflation.  Past performance does not indicate future return, but it is comforting to see that even if we’re invested during the super bear market (or hyper inflation) years that we can come out comfortably ahead providing that we stick with it for the long term.

Another issue that worth pointing out is that inflation rates don’t always apply to everyone.  As inflation is based on the consumer price index (CPI), people can choose to reduce their spending or find ways to spend less money thus reducing their personal inflation.


As I mentioned above, past performance does not indicate future returns, but it’s a start!  As we can see, a half century ago, investing in all equities over 20 years resulted in poor returns after inflation.  However, investing over 30 year periods have consistently put investors well ahead of inflation since 1950.

Perhaps the largest conclusion that we can make is that it pays to retire during a bull market. :)

So what do you think?  Did these long term investment numbers surprise you as well?


  1. Thomas on March 16, 2009 at 8:28 am

    I was surprised. The situation also gets worse when you remember taxes- assuming those returns were subject to capital gains, the number of years which showed negative returns would be increased.

  2. Dividend Growth Investor on March 16, 2009 at 9:39 am

    Stock market returns fluctuate over time. If you thought that you would get 10% every year from stock market investments, then you need to educate yourself further on how the market works.

    Despite the variations in 20 or 30 year performance, the stock market is one of the best vehicles for wealth accumulation. One should hold a diversified portfolio however, as an all stock portfolio is an over allocation.

  3. Philip in North York on March 16, 2009 at 10:24 am

    I was surprised after seeing 20 years performance chart too.
    For me, 30 years should be the time horizon for the long term plan.

    It seems that the market volatility really goes down when the time horizon goes longer. The 30 year performances have no negative number, but they tend to have milder growth rates when comparing to 20 year performances.

  4. FrugalTrader on March 16, 2009 at 10:30 am

    Also keep in mind guys that the returns are based on the S&P500 only which means it doesn’t include local and other international markets.

  5. trajan on March 16, 2009 at 10:41 am

    I can’t seem to duplicate those charts.
    1950-1970 shows as 12.59% raw , and 9.82% inflation adjusted.
    Not sure what is out of whack, as the tool looks foolproof-easy.

  6. FrugalTrader on March 16, 2009 at 10:59 am

    Seems that their calculator has changed since I used it! I will look into the numbers again this afternoon and see what the problem is.

  7. Connie Walsh on March 16, 2009 at 11:31 am

    I am confused. Is it really true that I only would make a maximum of 5.57 over 30 years??? So if I invested 100,000 today, in 30 years I would have 500,000 in today dollars (if I was so lucky as to retire in an amazing year). That sucks…really really sucks. That would mean that I would have about 32,000 to live on for the last 30 years of my life…ewww.

  8. Tyrone on March 16, 2009 at 11:32 am

    I’m not sure if you included dividends in your analysis. Here is an article claiming that once dividends are included your real return from 1960 to 1980 is in fact 2% and not -2% as your chart above shows

    The myths of market underperformance
    By Dan Richards
    Dan Richards is President of Strategic Imperatives and teaches in the MBA program at the Rotman School of Business, University of Toronto.

    Psychologists talk about the human propensity to gravitate towards evidence that supports existing biases. What that means, quite simply, is that in buoyant markets, investors are prone to believe outrageous claims by market bulls – think no further than “the world has changed forever” rhetoric and best selling books like “Dow Jones 36,000” and Harry Dent’s “The Great Boom Ahead” in the tech boom in 1999 and 2000.

    In the same way, in negative markets such as we’re experiencing right now, investors tend to believe even the most gloomy assertions from “media gurus” and self appointed experts – a recent New York Times article headlined “Forecasters race to call the bottom to the market” discussed the competition among market pundits to come up with the most dire possible predictions. (It’s noteworthy that the same Harry Dent who wrote “The Great Boom Ahead” has just published “The Great Depression Ahead.”)

    Most members of the media strive for accuracy in their reporting and work very hard to get the facts right. The problem – many of the assertions that get the highest profile are based on flawed analysis of past stock market performance by pundits who distort history to get media coverage for their alarmist claims or by well meaning commentators who quite simply get the facts wrong.

    Among the common cautionary claims about investing in the stock market:

    1. Investors made no money in the market from the mid 60s to early 80s.
    2. It took 25 years for the market to recover to the level reached in 1929.
    3. When inflation is taken into account, investors have lost money for long periods of time.

    Stocks made no money from 1965 to1982

    As just one example, a cover story in a recent Newsweek article featured the statement that the stock market was no higher in 1982 (the Dow ended 1981 at 875) than in 1965 (when it ended at 969). This is the most often quoted fact when people make the case that stocks can go sideways for long periods – and on the face of it, it’s hard to argue with this… unless we remember two critical points.

    First, despite its prominence, the Dow Jones is only vaguely representative of the stock market as a whole. Because it only contains 30 stocks and is price weighted rather than market weighted (in other words a stock trading at $50 has five times the weight of a stock trading at $10), it doesn’t truly represent how the overall market performs. In the 70’s in particular, the Dow Jones was laden with large household names referred to as “the nifty 50” that were chronic underperformers of the market as a whole.

    Second – and more important – looking at the overall price performance of any index ignores dividends, something that historically accounted for 40% of returns. Focusing on price performance of an index and excluding dividends isn’t just something that the media does – it’s a trap that many financial analysts and advisors fall into as well.

    Here are the results from 1965 to 1982, using the Standard and Poors Composite Index, containing the 500 largest stocks by market value and if we include dividends.

    Gain from Dec 31 1965 to Dec 31 1981:

    Capital appreciation: 33%
    Total return with dividends: 152%

    The result is an annual return of 6% – well below the long run return on large U.S. stocks of 10% but still a very different proposition than being down over this period.

    As an aside, people who use the period from the end of 1965 to 1981 are cherry picking one of the worst possible periods to make their case; here’s the total return for 16 year periods starting one year earlier and one year later:

    Dec 31 1964 to Dec 31 1980: 198%
    Dec 31 1966 to Dec 31 1982: 240%

    Note that excluding dividends in calculating long term returns isn’t just a trap that the media falls into – many investment analysts who should know better make the same mistake.

    Stocks took 25 years to recover to 1929 levels

    A second common myth relates to how long it took for stocks to recover after the great crash. And if we look at just the price index, this is true – looking at year end price levels, it took until 1952 to match the high hit by the S & P index at the end of 1928 … appearing to be a disastrous experience for investors who held on after through the great crash. If we include dividends however, we see a different story – with dividends included, at the end of 1952 the S & P was four and a half times the level of 1928, for an annual return of over 6% and a real return of 4% per year.

    Stocks lose money after inflation

    Let’s look a final example of fun with numbers.

    An article in the November 8 Globe and Mail featured an interview with Edward Kerschner, chief strategist with Citi Global Wealth Management, stating that in real terms the Dow fell 47% from 1960 to 1980. Kerschner’s point was that markets can be horrible places to be for long periods of time (especially with free spending presidents such as Kennedy, Johnson, Nixon – and perhaps Obama.)

    Here are the year end numbers for the Dow, both before and after inflation:
    Dec 31 Year end Dow Jones index Adjusted for inflation
    1959 679 679
    1979 899 344

    Again, it’s tough to argue with the argument that this twenty period was disastrous for investors in real terms – until we look at a broader based measure of stock market performance and include dividends. S&P 500 from Dec 31 1959 to 1979
    Gain Real return adjusted for inflation
    Capital gain 80% (31%)
    Total return 275% 43%

    On a total return basis, the annual real return in this 20 year period was 2% – because of a combination of lower stock market returns and much higher inflation than the historical norms, this period did indeed substantially underperform the historical real return of 7% (a gain of 10% less 3% inflation). Still, underperforming with a real return of 2% is a very different story than losing almost half your money. And again, on the theme of cherry picking time periods, if we use the 20 year period starting one year later, from the end of 1960 to the end of 1980, real returns are more than 50% higher at 71%.

    None of this is intended to say that stocks will always be a safe or pleasant haven for investors. And despite the overwhelmingly positive returns that long term investors in U.S. stocks have seen across virtually every time frame, there is always the possibility that it could be different going forward. Just remember, though, the only guide we have going forward is what happened in the past. And in looking at the past, we need to look at all the facts – not just those selected by people looking to grab newspaper headlines.

    Special to the Globe and Mail

  9. Dana on March 16, 2009 at 11:33 am

    What would happen when you buy during the height of a boom and need to retire during a trough? Timing still matters even for a long time investor, especially when his liabilities and cash flow are not lined up properly. I don’t think one can make sweeping statements like “investing long-term will always work out good” without taking into account individual situations.

  10. DAvid on March 16, 2009 at 11:34 am

    I wonder how a GIC or Bond ladder would compare? If I recall, interest rates do tend to adjust with inflation. Of course, taxation would eat into the profits at a greater rate.


  11. CanadianFinance on March 16, 2009 at 12:07 pm

    While a little surprising, ultimately we can’t do much about inflation. We can however try to build an asset allocation that provides as much return as possible… and hopefully it does beat inflation ;)

  12. Canadian Capitalist on March 16, 2009 at 12:21 pm

    This doesn’t sound right and I’d recheck the numbers. Here are a couple of pages that show 20-year rolling returns:

    The numbers are close to each other but at a cursory glance, yours seems to be way off.

  13. Brian on March 16, 2009 at 12:23 pm

    Those numbers match up with the results in J. Seigels research on 30 year stock market returns. I wasn’t too suprised.

    Most of the 30 year total return data depends upon the great US bull markets of the 80’s and 90’s. Lets hope that those types of returns are not anomolies and can be achieved in future economic development.

  14. FrugalTrader on March 16, 2009 at 1:07 pm

    Guys, the numbers were way off before. I have updated the table to reflect the changes. Seems that equities returned positive over any 20 or 30 year period since 1950.

  15. mjw2005 on March 16, 2009 at 1:15 pm

    I am almost certain that these numbers do not include dividends….

    In Jeremy Siegels book “Stocks for the long run” he said that between 1802 and now stocks have had a REAL return (after inflation) in the U.S. of +6% to +7% and that by a large margin over a nearly 200 years stocks were by far the best performing asset class…better than bonds, better than RE, better than cash…

    Now we have had a pretty good run over these past twenties years so perhaps going forward we will have to revert to the mean….so if you have a time horizon of less than 20 or 30 years than yes maybe I would be worried about the performance of the stock market, but if your young and just starting out, then you have been given a gift and in fact should pray that markets stay low for as long as possible so you can buy as much as possible and then enjoy your returns as markets again return to there 200 year average of 6% return after inflation…..

    I am not worried.

  16. Ray on March 16, 2009 at 1:19 pm

    I must admit I am surprised with the 20 year return. But assuming the numbers are right, two important take I think everyone should take into account is that. as Tyrone pointed out the return does not included dividends and it would be the return based on 100% stock portfolio in the S&P 500.
    I wonder what the return would be with some asset allocation and part of portfolio in fixed income such as bonds.
    It shows the importance of asset allocation and diversification.

    On a site note: I am not a big believer in the US markets for the next few years, I think it will go through a very slow growth period and very high inflation with all the money being thrown out.

  17. FrugalTrader on March 16, 2009 at 1:21 pm

    According to the calc, dividends are included.

  18. Ray on March 16, 2009 at 4:45 pm

    Wow if it does include dividends than the results are worse than I’d expected

  19. Geoff on March 16, 2009 at 7:49 pm

    I see the value in looking at long periods of returns only in a larger context.

    Was the affected nation a the debtor nation, creditor nation? Was manufacturing a greater percentage of the nation’s GDP in one 30 year period than the other?

    The idea that stocks are a good play for 30 years or longer may be true. What I don’t agree with, however, is that the US is a good stock play every single 30 year period.

    China/India may emerge as the next great location of stocks, leaving US equities in the dust.

  20. Ed Rempel on March 16, 2009 at 9:10 pm

    Hi Geoff,

    The US has been a decent stock play in all 30-year periods. Even if you invested at the peak in 1929, there were still good returns of 11%/year over the next 30 years.

    Factors of the economy are not really relevant. There is no evidence that creditor nations or emerging economies have better stock markets.Slow-growing economies like Germany have had similar stock market returns to the US and fast-growing economies like China over the last 30 years.

    There are periods of time when economies have great runs, but a study of returns over the last 100 years showed a slight negative correlation between economic growth and stock market growth.

    In short, there is no long term correlation at all between how fast an economy grows and how fast its stock market grows. The reason for this is the same reason that faster-growing companies are generally not better stocks. For example, the return of the NASDAQ for the last 30 years is about the same as the S&P.

    The reason for this is that fast-growing economies or companies tend to be valued higher consistently.

    This is the part of stock market investing that most investors don’t understand. Future returns result from growth compared to expectations – not growth on its own.

    For example, if Company A has an average P/E of 20 and grows at twice the rate of Company B that has an average P/E of 10, then the 2 stocks will grow at about the same rate. The growth rate of both companies are what were expected, so the growth of their stocks will be about the same.

    Stocks make money over the long term because companies grow their profits over the long term. As long as companies are growing their profits over the long term, stock markets will grow regardless of the overall economy.


  21. Sarlock on March 17, 2009 at 3:01 am

    Returns seem low because inflation is factored out of the calculations. Remember that we had some brutal inflationary years in the 70’s and 80’s that really helped to lower the overall stock market return of the bull markets before and after. Achieving a portfolio return of 5% over inflation over a long period of time is nothing to be upset about. If you’re chasing numbers bigger than that, you’ll be taking on a lot of risk and chancing a large portfolio loss (easy come, easy go).

    Also keep in mind that the S&P 500 is a moving basket of stocks. The losers are dumped and the winners are added all the time. Just like how AIG was removed from the DJIA on Sept 22, 2008 and replaced with Kraft Foods. In order for these returns to be mirrored in a portfolio, you would have to invest in the index or a basket of stocks that moves with changes in the index. This also does not include any transaction fees or taxes during this period either. Improper management of either would considerably reduce your overall returns to values near inflation. A 15% return in a year with 10% inflation but taxes and fees of 1/3rd of that 15% would equate to a break-even year. Fees and taxes are extremely important in attempting to beat inflation.

  22. Ray on March 17, 2009 at 10:51 am

    Thanks for the update in the calculations FT it does make me feel somewhat better :)

  23. Scott on March 17, 2009 at 9:20 pm

    Here’s my two cents (because that’s all I have left…):

    I think it would be fair to DISCOUNT the market performance over the last 20 or so years considering how utterly fraudulent the underlying fundamentals have been. Even inflation is not real (can anyone prove that inflation HAS to exist?).

    But then again, truth and reality are often divergent. The mass doesn’t care which is which, as long as they get their money. Ergo, 2008.

    Anyone want to buy a bridge?

  24. personal finance deals on March 18, 2009 at 8:30 am

    Gained money that i dont have use for right now what is the best method for investing long term- long term such as 10 years.

  25. paul s on March 18, 2009 at 9:36 pm

    yep, after taxes and fees you’ve got nothing to show for your risk…it’s a shame the myth of wealth accumulation will persist inspite of the facts.

  26. Scott on March 19, 2009 at 12:55 am

    re: pfd — “…money that i dont have use for right now…”

    Oh really? Are you debt free? Mortgage free? RRSPs all maxed out?

    Any other questions?

  27. The Math Guy on March 26, 2009 at 10:35 am

    This is a funny because I JUST finished writing and uploading an e-book title “Investing for the Long Term” where I study the rolling 20 year returns of a simple 10 month moving average strategy to get in and out of the markets (as well as 2 other strategies that improve the return to 24% with less risk than the market). Anyway, it does pay to retire during a bull market; but it pays more if you’re smart about your long-term investing and don’t just give your money away to the “professionals” who charge you 1-2% a year while they’re being nice enough to lose you 40% in 2008. Turns out that with a simple 10 month moving average you can cut the market risk in half and get a higher return.

  28. Gates VP on March 27, 2009 at 3:27 pm

    Perhaps the largest conclusion that we can make is that it pays to retire during a bull market. :)

    Hey FT;

    I’m behind on the feed reader, but I did have some follow-up comments on the original post. One of the issues I had with the original plan was not really during the growing years but instead during the retirement years.

    If you assume that you actually have “enough” money at retirement time, but then follow her plan, you’re hosed if you retire in the wrong year.

    Try plugging the numbers and then retiring in 1998 with $2M in the bank. Make yourself pull out money each year while the markets slowly eke down from 1998 to 2007, watch what happens in 2008/09 when you’re (ostensibly) 76 years old. You’re following the rules and living off your 4% (80k), but if you have 2 healthy adults, you need a really big market rally and low inflation is you want to stick it out to 95.

    Maybe I need to do a whiteboard or a screencast or somesuch, but it’s pretty obvious that her plan doesn’t work if you retire in the wrong year.

    And that’s the big problem to me. It’s not the long-term investment growth, it’s the fact that following her allocation will mean a very “uncomfortable” retirement if you retire at the wrong time or live for too long.

    You can’t just save up a bunch of money, you have to retire at the right time.

    What type of plan is that?

  29. incometaxguy on January 22, 2011 at 12:53 pm

    I personally don’t like to see money just sitting there, unless it is a small amount. Now after I have used the cash to exploit its power by flipping something (for example: real estate, automobiles etc.) Then I may take a small portion and park it. But there are always deals in an up or down economy for people who have cash on hand.

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