S&P 500 Rolling Period Total Real Returns

There seemed to be a bit of confusion regarding yesterday’s Why the Long-Run is so Important When Investing in Stocks post. My goal with that post was to show that the long-run tends to smooth out returns (both negative and positive) and that investors who have a long time-horizon don’t really need to worry about the daily ups and downs of the market.

Here’s how I put that post together:

1. I took the indivdual yearly total returns for the S&P 500 Index as found in Ibbotson’s Stocks, Bonds, Bills, & Inflation.

2. Depending on the rolling period I was looking at, I simply took the geometric average of the real returns from that period. For instance, for the first 5-year period, which was 1926 – 1930, I used the following real returns (remember real returns are the returns minus inflation for that period):

S&P 500 Index Returns 1926 - 1930

3. Then, I took the next 5-year period (1927 – 1931) and performed the same calculation until all 5-year periods were calculated.

The end result was a bar chart that showed the average annual real returns for the various rolling periods.

Today I decided to look at TOTAL REAL RETURNS (or cumulative returns) for each rolling period. To illustrate what I’m talking about, take a look at the graphic from above. To calculate the cumulative return over that 5-year period, you simply multiply the factors together like this:

1.1311 × 1.3957 × 1.4458 × 0.9138 × 0.8113 = 1.69213

Now, you simply subtract 1 from that number and move the decimal 2 places to the right and you get 69.213% as the total real return for the 5-year period from 1926 – 1930. So, had you invested $10,000 at the beginning of 1926 and held it for the entire 5-year period, it would have grown to $16,921.30 by the end of 1930. Keep in mind that that number is real return, which factors in inflation.

So, here’s a look at the total real returns for 5, 10 and 20-year holding periods (you can click on each chart to see a larger version):

S&P 500 Rolling 5-Year Total Real Returns
1926 – 2006

S&P 500 Inflation-Adjusted Returns (5-Year Holding Periods)

S&P 500 Rolling 10-Year Total Real Returns
1926 – 2006

S&P 500 Inflation-Adjusted Returns (10-Year Holding Periods)

S&P 500 Rolling 20-Year Total Real Returns
1926 – 2006

S&P 500 Inflation-Adjusted Returns (20-Year Holding Periods)

5 thoughts on “S&P 500 Rolling Period Total Real Returns”

  1. Seeking opinions on Fidelity vs. Vanguard. In my rollover IRA at Fidelity I currently own a mix of Vanguard index funds.

    Any advantage to moving the account to Vanguard? I plan to invest this money primarily in index funds.

    Thank you!


  2. How long do you have to live if you want to see real growth with a buy and hold mentality? The false perception is that investing long term is safe. The reality is that taking control of your own accounts “after proper education” results in much better returns. Sadly most people are unwilling to make the effort necessay to enjoy a solid financial future. They would rather give up control so that they have someone else to blame.

  3. Repeated studies have been done by neutral parties (mainly academics) and they consistently show that, after deduction for fees, active management almost never beats indexing over time. So your concern should be with low cost investing and proper asset allocation (generally getting more conservative as you get older). As for VG vs Fido – if you are indexing anyway, move to VG and save on Fido’s fees. Vanguard has tools to help with your asset allocation and they are free on the web.

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