STREET DOGS

From Ben Carlson at A Wealth of Common Sense:

From 1928-2017, the S&P 500 showed an annualised average return of roughly 9.6% a year.

From 2009 to 2017, the S&P 500 showed an annualised average return of roughly 15.1% a year. One of these data points is unsustainable (okay maybe both).

The S&P 500 index would have to go nowhere for the next five years to bring the 2009 returns into alignment with the long-term averages.

So if the S&P saw 0% total returns beginning at the start of 2018, the 14-year annualised return number from 2009-22 would be 9.5%, right around that really long-term average number.

Of course, there’s nothing that says these long-term averages are written in stone or that we have to get back to those averages within a certain time frame.

I’m simply trying to show how powerful this bull market has been.

To take things a step further, looking at the rolling five-year total returns on the S&P 500 going back to the 1920s:

Since the Second World War, the worst five-year total return began in the summer of 2004 and ended in the spring of 2009, which is where the market bottomed.

That was a loss of about 29% in total, or an annualised loss of about 6.6%.

Let’s use this as the worst-case scenario. Let’s say the five-year period from 2018-22 sees a loss of close to 30%.

We would have to see something out of the ordinary for this to occur, but nothing is ever off the table when it comes to the stock market.

If the S&P 500 lost 30% of its value in total over the coming five years, the annual return from 2009-22 would still be 6.8% a year. That wouldn’t be a fun experience for an investor, but those numbers wouldn’t be bad for true long-term investors.