One necessary ingredient in planning for your financial future is estimating how much your money will return while invested. Since you can’t tell the future, the best thing you can (likely) do is look to the past.
For your convenience, I’ve converted Robert Shiller’s S&P 500 data from 1871 until 2012 into geometric average trailing annual returns for 40, 20, 10, 5, and 1 year periods. I’ve calculated both nominal returns and returns after inflation – and all results include dividend reinvestment. (See all of our investment calculators here. Most have more recent, dividend reinvested data!). Enough said, here it is:
Historic Trailing Stock Returns
Historic Returns and Volatility
Want to know something interesting about the history of the S&P 500 Index? The longer the time period:
- The greater the chance the dividend reinvested S&P 500 returned a positive result annually
- The less the volatility
That second point makes a nice visual result. Here’s all of the trailing inflation adjusted returns presented visually:
How to Use This Data
This calculator will let you know if your estimated investment returns ‘make sense’, at least from a historic point of view.
This calculator’s results don’t mean that a given return is impossible to reach, nor does it set a floor on returns. It’s possible, even if not probable, that you might even do worse than the returns indicated. The data is best viewed as a guide, so you’ll know what is reasonable to expect in the future. Remember: it’s better to be conservative and have too much money than overly optimistic and have too little.
This is also a tool you can use to check your asset allocation when you have specific savings goals. For example, if you’re buying a house in the next year, the S&P 500 has only returned more than 0% after inflation 67.91% of the time. The longer your investment horizon, the surer you can be you’ll have a positive return.
The important thing to note is that the calculations to create this data were done assuming no taxes and no transaction fees, along with no management fees. That said, you can read the whole methodology in the S&P 500 Return Calculator‘s methodology section.