By JLP | August 29, 2012
It’s been awhile since I updated the rolling total returns for the S&P 500 Index*.
I’ll do a follow-up with some different information but right now I wanted to show you the following charts. Here is how I put the following charts together:
• I have montly total return data for the S&P going back to January 1926.
• To calculate the holding period average rate of return, I took the product of the monthly returns and then raised it to 1/n (1 over the number of years).
Example: For the 5-year period from 1926 – 1930, the product of the monthly returns was 1.486667021. I then raised it to 1/5 or .2 to get 1.082536981. Then I subtracted one from that to get an average annual rate of 8.25%. Then I ran the calculation for the following month, which would include February 1926 – January 1931. Make sense?
• Then I took those returns and put them in a chart.
As you look at the charts, notice how as the holding period increases, the returns become less sporadic. Also, notice how the 1, 5, and 10-year holding periods all have period of negative average annual returns. the 10-year holding period was pretty solid until the internet bubble, 911, and the housing bubble/credit crisis.
*The S&P 500 Index consisted of 90 stocks prior to February 1957.