S&P 500 Index – Average 10 year Return
After about a month and a half into writing this blog and reading about 100+ personal finance blogs everyday, I have a few basic ideas that I believe about investing.
1) Have a budget and spend less than you make – We created a budget this month and we seem to be doing pretty good. I will be providing our budget update end of this month.
2) Have an emergency fund before getting into investing – We have an emergency fund. It is not as big as what we want it to be. But it is a fairly decent amount.
3) Contribute to 401(k) – It is setup and is going to happen automatically every month. We can have a tick mark in this one too.
4) Reduce debt – With a mortgage and auto loans looming in our networth calculation, it is a process that is going to take time. We are committed to get rid of all our bad debt.
5) Invest in index funds - We have started our journey of learning how index funds work. My first experiment in this regard was to find how an index has changed over different 10 year periods.
The S&P500 % change for each of the years from 1989 to 2007 is as below:
(data from http://www.econstats.com/eqty/eqea_mi_1.htm)
For various 10 year periods, the average % change are as below:
Also for the entire period of 1989 – 2007, the average % change is 10.39%.
Just by looking at the data above, it looks as though the trend is going down. But if it is looked at in detail, the worst years for this index was 2000, 2001 and 2002 when the percentage change was -10.14, -13.04 and -23.37. All but one(exception of 1998-2007) of the 10 year periods that had these brutal years included in their calculations had an average return of > 8%. The 10 year periods that had one or two of these brutal years (periods 1992-2001 and 1991-2000) and none of the brutal years (periods 1989-1998 and 1990-1999) had an average return of > 10%.
The conclusion that I could reach from the above is that index funds are a sure fit for our portfolio. Though it might not have been the greatest in the one 10 year period of 1998-2007 compared to the current high yield savings interest rate(assumption of 4%), it definitely has the best performance with low expense ratios and low risk.
I found your site on technorati and read a few of your other posts. Keep up the good work. I just added your RSS feed to my Google News Reader. Looking forward to reading more from you.
Allen Taylor
Thank you very much Allen
You are on to the right track. I’d like to suggest that you do some research on value investing. You can start with my blog. It is possible to beat the S&P 500 index.
There are not too many websites where one can find real and accessible data.
Thank you for your work!
Here’s a suggestion, instead of averaging returns, take a $10,000 investment and run it through the returns for the latest ten years. This will give you the “if you invest $10,000 in 1997, then you would have XXX in 2007″ answer that will represent the true return. Negative numbers hurt more than positive numbers help!
@shaferfinancial Good idea. Here are my numbers from a simple script, 1988-prelim 2009. Unless you started your investment on or before 1996, you’ve lost. Gain/loss is cumulative over the period. With the atrocious 2008 and 2009 results, the more recent results are probably to be expected:
Starting in 1988, $10000 invested in the S&P 500
—————
1989 value) $12725
1990 value) $11890.37
1991 value) $15018.37
1992 value) $15688.79
1993 value) $16795.63
1994 value) $16537.15
1995 value) $22178.13
1996 value) $26672.31
1997 value) $34942.86
1998 value) $44261.77
1999 value) $52904.32
2000 value) $47539.82
2001 value) $41340.63
2002 value) $31679.32
2003 value) $40036.33
2004 value) $43636.8
2005 value) $44946.34
2006 value) $51067.58
2007 value) $52870.26
2008 value) $32522.61
2009 value) $31426.6
Gain: 214.27%
—————
Starting in 1989, $10000 invested in the S&P 500
—————
1990 value) $9344.1
1991 value) $11802.25
1992 value) $12329.1
1993 value) $13198.92
1994 value) $12995.79
1995 value) $17428.79
1996 value) $20960.56
1997 value) $27460
1998 value) $34783.31
1999 value) $41575.1
2000 value) $37359.39
2001 value) $32487.72
2002 value) $24895.34
2003 value) $31462.73
2004 value) $34292.18
2005 value) $35321.29
2006 value) $40131.69
2007 value) $41548.34
2008 value) $25558.05
2009 value) $24696.74
Gain: 146.97%
—————
Starting in 1990, $10000 invested in the S&P 500
—————
1991 value) $12630.7
1992 value) $13194.53
1993 value) $14125.41
1994 value) $13908.02
1995 value) $18652.18
1996 value) $22431.86
1997 value) $29387.53
1998 value) $37224.89
1999 value) $44493.43
2000 value) $39981.79
2001 value) $34768.17
2002 value) $26642.85
2003 value) $33671.23
2004 value) $36699.28
2005 value) $37800.63
2006 value) $42948.7
2007 value) $44464.79
2008 value) $27352.07
2009 value) $26430.3
Gain: 164.3%
—————
Starting in 1991, $10000 invested in the S&P 500
—————
1992 value) $10446.4
1993 value) $11183.39
1994 value) $11011.28
1995 value) $14767.34
1996 value) $17759.79
1997 value) $23266.75
1998 value) $29471.76
1999 value) $35226.41
2000 value) $31654.46
2001 value) $27526.71
2002 value) $21093.72
2003 value) $26658.25
2004 value) $29055.62
2005 value) $29927.58
2006 value) $34003.42
2007 value) $35203.74
2008 value) $21655.23
2009 value) $20925.45
Gain: 109.25%
—————
Starting in 1992, $10000 invested in the S&P 500
—————
1993 value) $10705.5
1994 value) $10540.74
1995 value) $14136.29
1996 value) $17000.87
1997 value) $22272.5
1998 value) $28212.36
1999 value) $33721.1
2000 value) $30301.78
2001 value) $26350.43
2002 value) $20192.34
2003 value) $25519.07
2004 value) $27814
2005 value) $28648.7
2006 value) $32550.37
2007 value) $33699.4
2008 value) $20729.85
2009 value) $20031.25
Gain: 100.31%
—————
Starting in 1993, $10000 invested in the S&P 500
—————
1994 value) $9846.1
1995 value) $13204.7
1996 value) $15880.5
1997 value) $20804.73
1998 value) $26353.14
1999 value) $31498.86
2000 value) $28304.88
2001 value) $24613.92
2002 value) $18861.65
2003 value) $23837.35
2004 value) $25981.04
2005 value) $26760.73
2006 value) $30405.28
2007 value) $31478.58
2008 value) $19363.74
2009 value) $18711.18
Gain: 87.11%
—————
Starting in 1994, $10000 invested in the S&P 500
—————
1995 value) $13411.1
1996 value) $16128.73
1997 value) $21129.92
1998 value) $26765.06
1999 value) $31991.2
2000 value) $28747.3
2001 value) $24998.65
2002 value) $19156.46
2003 value) $24209.94
2004 value) $26387.14
2005 value) $27179.02
2006 value) $30880.53
2007 value) $31970.61
2008 value) $19666.4
2009 value) $19003.64
Gain: 90.04%
—————
Starting in 1995, $10000 invested in the S&P 500
—————
1996 value) $12026.4
1997 value) $15755.55
1998 value) $19957.39
1999 value) $23854.27
2000 value) $21435.45
2001 value) $18640.27
2002 value) $14284.04
2003 value) $18052.17
2004 value) $19675.6
2005 value) $20266.06
2006 value) $23026.1
2007 value) $23838.92
2008 value) $14664.27
2009 value) $14170.09
Gain: 41.7%
—————
Starting in 1996, $10000 invested in the S&P 500
—————
1997 value) $13100.8
1998 value) $16594.65
1999 value) $19834.92
2000 value) $17823.66
2001 value) $15499.46
2002 value) $11877.23
2003 value) $15010.45
2004 value) $16360.34
2005 value) $16851.31
2006 value) $19146.29
2007 value) $19822.16
2008 value) $12193.4
2009 value) $11782.48
Gain: 17.82%
—————
Starting in 1997, $10000 invested in the S&P 500
—————
1998 value) $12666.9
1999 value) $15140.24
2000 value) $13605.02
2001 value) $11830.92
2002 value) $9066.04
2003 value) $11457.66
2004 value) $12488.05
2005 value) $12862.81
2006 value) $14614.6
2007 value) $15130.49
2008 value) $9307.37
2009 value) $8993.71
Loss: (10.06%)
—————
Starting in 1998, $10000 invested in the S&P 500
—————
1999 value) $11952.6
2000 value) $10740.61
2001 value) $9340.03
2002 value) $7157.27
2003 value) $9045.35
2004 value) $9858.8
2005 value) $10154.66
2006 value) $11537.63
2007 value) $11944.91
2008 value) $7347.79
2009 value) $7100.17
Loss: (29%)
—————
Starting in 1999, $10000 invested in the S&P 500
—————
2000 value) $8986
2001 value) $7814.23
2002 value) $5988.04
2003 value) $7567.69
2004 value) $8248.25
2005 value) $8495.78
2006 value) $9652.82
2007 value) $9993.56
2008 value) $6147.44
2009 value) $5940.27
Loss: (40.6%)
—————
Starting in 2000, $10000 invested in the S&P 500
—————
2001 value) $8696
2002 value) $6663.74
2003 value) $8421.64
2004 value) $9179
2005 value) $9454.46
2006 value) $10742.06
2007 value) $11121.26
2008 value) $6841.13
2009 value) $6610.58
Loss: (33.89%)
—————
Starting in 2001, $10000 invested in the S&P 500
—————
2002 value) $7663
2003 value) $9684.5
2004 value) $10555.43
2005 value) $10872.19
2006 value) $12352.88
2007 value) $12788.94
2008 value) $7866.99
2009 value) $7601.87
Loss: (23.98%)
—————
Starting in 2002, $10000 invested in the S&P 500
—————
2003 value) $12638
2004 value) $13774.54
2005 value) $14187.91
2006 value) $16120.16
2007 value) $16689.2
2008 value) $10266.2
2009 value) $9920.23
Loss: (0.8%)
—————
Starting in 2003, $10000 invested in the S&P 500
—————
2004 value) $10899.3
2005 value) $11226.39
2006 value) $12755.31
2007 value) $13205.57
2008 value) $8123.28
2009 value) $7849.52
Loss: (21.5%)
—————
Starting in 2004, $10000 invested in the S&P 500
—————
2005 value) $10300.1
2006 value) $11702.87
2007 value) $12115.98
2008 value) $7453.03
2009 value) $7201.86
Loss: (27.98%)
—————
Starting in 2005, $10000 invested in the S&P 500
—————
2006 value) $11361.9
2007 value) $11762.98
2008 value) $7235.88
2009 value) $6992.03
Loss: (30.08%)
—————
Starting in 2006, $10000 invested in the S&P 500
—————
2007 value) $10353
2008 value) $6368.54
2009 value) $6153.92
Loss: (38.46%)
—————
Starting in 2007, $10000 invested in the S&P 500
—————
2008 value) $6151.4
2009 value) $5944.1
Loss: (40.56%)
—————
Starting in 2008, $10000 invested in the S&P 500
—————
2009 value) $9663
Loss: (3.37%)
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