At the suggestion of a couple of commenters on my **S&P 500 Fun Facts** post, I decided to rerun the numbers **with inflation included**. Here’s what I found along with a link to the source information:

NOTE: Although you should already know this, *past performance is no guarantee of future performance.*

Very informative. It does appear that at least some of the 10-year and 20-year results are switched.

This is exactly as it says, fun facts! For many of us, it is best buy a low cost index fund and stick with it through good and tough times (something that 401k plans are designed to do better than a brokerage account).

My Own Millions Blog

Dave,

You are correct – a result of my cutting and pasting. I have fixed the problem. Sorry about that.

Actually the first two stats in the 10 year section show dates that span 20 years.

I don’t like to (still?) be a wet blanket, but a comparison to the 5 year t-bill is interesting. Obviously, the S&P 500 did better overall, but if you can see the year-to-year performance, there are some years you’d want to have treasuries. This all depends how much risk you can afford to take.

One last thing… the S&P 500 had a great 10% long-term return due to (approximate and nominal) a 6% increase in earnings and a 4% yield. Let’s assume that we continue to have a 6% increase in earnings. (I hope that’s true, but I think it’s a tad high.) Yields are down to about 1.7% (according to Vanguard). So we can expect a (nominal) 7.7% long term return in the future.

5 year treasuries return about 5%, risk free. So for large cap equities, we’re looking at 2.7% more return than a risk free investment. That’s a strange situation. It might mean that the market will correct so valuations bring yields back in line. Or it might be that prices won’t appreciate much. Or it could just mean that large cap risk is now considered lower so the return will be lower.

This said, I do have large caps, but in a diversified portfolio.

Bobby,

You’re right! That’s what I get for trying to hurry.

Good stuff!

Why wouldn’t the Average Real Return Since 1926 (=9.22%) be the same as the Average Annual Real Return since 1926 (=7.18%)? Can you explain why they are different?

Steve K,

The difference between the two numbers is that 9.22% is the average inflation-adjusted return, while 7.18% is the average ANNUAL inflation-adjusted return. In other words, 7.18% is the geometric average.

Make sense? If not, let me know and I’ll write a post about the difference.

thanks for putting together all the statistics on the S+P 500. Clearly the inflation adjustment matters, and clearly the average annual return brings the nominal yield down even lower. Going forward the returns might be even lower because of a decrease in yields (comment by Lorax). What happens if you do the math and include 1)the costs of being in a mutual fund and 2)the taxes that you will have to pay when you actually try to get the money out of your 401 or IRA? this will bring the average annual return much lower, won’t it? thanks