Archives For S&P 500 Index

I have yet to find an insurance person who compares an equity-indexed annuity or insurance policy to the S&P 500 Total Return Index, which includes dividends.

One of the reasons could stem from the fact that the S&P 500 Index Price Return (Ticker: ^GSPC on Yahoo!) is what the insurance company uses when determining the amount to credit the policy each month or year. We won’t get into why insurance companies don’t credit based on total returns.

The other reason I can come up with as to why they don’t is that their products look much better when compared to the price index rather than the total return index.

I came across an article Sunday morning about an Indexed Universal Life (IUL) policy. This particular policy had a floor of 2% and a cap of 11.25%. A 2% floor means that the account value will always get credited at least 2%, no matter how badly the market performs. As you can probably guess, an 11.25% cap means that annual gains are capped at 11.25%, no matter how well the market performs. The index used to judge the amount credited to the account is the S&P 500 price return.

Two things can be seen from the graphic I put together, which looks at 10-year holding periods. The returns you see are average annual rates of return over the 10-year period. The math equation for the 1926 – 1935 time period looks like this (NOTE: the list of numbers you see below are the annual price returns for the S&P expressed as factors):

[(1.0572 x 1.3091 x 1.3788 x 0.8809 x 0.7152 x 0.5293 x 0.8485 x 1.4659 x 0.9406 x 1.4137)1/10 – 1]

A couple of things are made clear by the following graphic I put together:

1. It’s definitely to the insurance company’s advantage to credit based on the price index.

2. It’s also obvious why insurance salespeople like to compare their products to the price index (it makes their products look much better).

Comparing IUL to SP500

One thing that also needs to be pointed out is that although the credits are “after all fees and expenses,” that’s not entirely accurate. A better way to say it would be, “after all fees and expenses on the investment account of the policy.” In other words, when a person sends a check to the insurance company, not all of their money goes to work for them in the investment account.

I hope the last few posts about insurance products has been helpful. I am not an insurance expert (heck, a big bulk of insurance salespeople are only familiar with a few of the products they sell), but I would think long and hard before I used the Bank on Yourself strategy or bought an equity-indexed annuity or indexed-universal life policy.

Yesterday’s 1.58% decline for the Dow Jones Industrial Average was the 6th worst first day of the year in the history of the Dow (going back to 1929).

If history is our guide, we’re in for a ho-hum year. I looked at the 20 worst first trading days for the DJIA and then looked at the return for that year. Please note that I used price returns for the DJIA and also included total returns for the S&P 500 because I don’t have total returns for the DJIA going back that far. Because I used two different indexes you’ll see instances where the total return is less than the price return.

20 Worst DJIA Starts

By far the worst performing asset class for 2015 followed by AFM was the MSCI Emerging Markets Index, which was down nearly 15%. Based on the numbers I found this morning, it’s a very volatile index:

MSCI Emerging Markets Index TR

Yet, even with all that volatility, it still performed a lot better than the S&P 500 over the same period. NOTE: The iShares MSCI Emerging Markets ETF (EEM) began trading on 4/14/2003. Since that day, it has had a 10.51% average annual rate of return vs. 8.95% for the iShares S&P 500 Index ETF (IVV).

Here is the up-to-date report through 2015 (click on the graphic to download the PDF).

Total Returns for Various Indexes - Dec 2015

This is a video from 2014 in which Dave Ramsey addresses yet another question about his use of 12% as a benchmark rate of return.

Looking at the 30-year rolling return spreadsheet I put together, we can see that 12% or greater returns are possible. They occurred 19 out of 60 times.

When we take the average of all 60 of those 30-year annualized returns, we get 11.21%. You might think 11.21% is close enough, but over 30-years it’s a big difference. A person who received an 11.21% annualized return over 30 years would end up with a portfolio about 80% of the size of the person who achieved a 12% return.

What’s even more important to note is that these are index returns, NOT what a person could get in the real world. After fees (and don’t forget about inflation), the actual returns would most certainly be lower than published index returns.

I would respect Dave a lot more if he would come out and admit the error of his ways, but as you can tell from the above video, that’s not going to happen.

This is the last installment of S&P 500 Index Rolling Returns series.

The average 30-year rolling total return for the S&P 500 starting with 1926, is 2,478% or 11.21% annualized (geometric mean). There were several 30-year periods that had annual returns between 8% and 10%. Also, these numbers are not adjusted for the CPI, which would have a significant negative impact on the end results (perhaps another AFM series?).

Here are links to the other posts in this series:
S&P 500 Annual Returns 1926 – November 2015
S&P 500 5-Year Rolling Total Returns
S&P 500 10-Year Rolling Total Returns
S&P 500 20-Year Rolling Total Returns

At the request of an AFM reader, I will be posting a series of spreadsheets of rolling total returns for the S&P 500 Index. Please note that these returns do not include an adjustment for the CPI.

Click here if you can’t see the spreadsheet.

I can sum up August 2015’s market performance for you in one word:


In the eight indexes I follow (plus crude and oil), only two were up during August: crude oil and gold.

The S&P 500 Index—the index I follow most closely and have the most data on—was down 6.03%. That was its worst August performance since 2002.

Year-to-date, everything is down except the Barclay’s Aggregate Bond Index.

You can see the results for yourself by downloading the latest PDF: S&P 500, MidCap 400, SmallCap 600, & 1500 Performance History (01-2011 – 08-2015)