Bringing you info on the boom or bust nature of the stock market, Austin brings you a solo episode discussing annual returns, rolling returns, and some words of encouragement to get you through the market’s current rough patch. The markets may look a little choppy right now, but that doesn’t mean that they’re always going to be that way. Listen now!
Main Talking Points
[1:19] – Annual Returns
[5:12] – Dad Joke of the Week
[5:51] – Rolling Returns
[10:55] – Words of Encouragement
Links & Resources
US Stocks Rolling Returns – Lazy Portfolio ETF
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb, and Austin Wilson.
All right. Hey. Hey. Hey. Welcome back to The Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I’m Austin Wilson, a research analyst at Hixon Zuercher Capital Management. And I am bringing you a special episode today where I’m going to be talking about something that I am passionate about.
So, Josh will not be joining me today. But you might be asking, how can you help us grow this podcast and help lots of people. Well, first of all, we would love it if you would subscribe, if you’re not subscribed already. We drop new episodes every single Thursday, and we would love it if you would get those new episodes right as soon as they come out. And we would also love it if you would leave us a review on Apple podcast or Spotify or wherever you are listening to our podcast, because that will help us to be found by other people just like you.
So today, we are going to be talking about the boom or bust nature of the stock market. Because this year, 2022 has been notoriously choppy, whether that be in the equity markets or the fixed income markets or anything. So, there’s been nowhere to hide, and I wanted to discuss that.
[1:19] – Annual Returns
So let’s get into the numbers because I’m a numbers guy. So let’s talk. Using data published by AMG, which is a large money manager they have data for the S&P 500 calendar years going back to 1926. So that’s a long, long, long time. That’s 96 years’ worth of data.
First of all, let’s point out that the stock market has been positive. So you’ve generated a positive return, 71 out of the 96 years. 71 out of 96 is not so bad. That’s 74% of all years. The stock market’s been negative on 25 of those 96 years or 26% of calendar years.
There have been, here’s a couple interesting nuggets here, there have been 36 years where the stock market has returned more than 20%. That’s a big, good return. And we’ve had a handful of those recently. So, 36 years of 20% plus returns. There have only been six years where the stock market was down more than 20%. So little lopsided, right?
Let’s talk a little bit more of these detailed numbers here. So, the S&P 500 average annual return since 1926 has been 10.5%, 10.5% on average. So, you would maybe assume that the stock market has returned around 10% in a lot of those 96 years that we’ve had since 1926.
And unfortunately, if you were thinking that you’re wrong. But the numbers might surprise you. In fact, if you look at a broader range, so plus or minus a couple percent from that average, if you look at returns between eight and 12 percent, so what people would say is a normal return in the stock market, that has actually only occurred six times, six in 96 years.
There have been 90 years where you’ve had much better returns or much worse returns than what we would call average in the stock market here in the United States. So let’s look at some of those different levels of returns and how often that has occurred. We said six, eight to 12 percent. So, quote unquote, “Average,” I’m using air quotes on a podcast, average returns in 96 years.
Well, what if we bump that up to 12 to 20 percent positive returns? There have been 15, 12 to 20 percent returns in that 96. And what if we look, like I said, those more than 20%. As a reminder, 36 times, we’ve had more than 20% returns. However, not all years have better than average returns or even average returns. So, there are definitely some years where you have slightly positive or negative returns.
If we look zero to 8 percent returns, there have been 14 times that we’ve had that in 96 years. If we look at zero to negative 8 percent, so a marginal loss, that has occurred seven times. And if we look negative eight to negative 12 percent, that’s occurred 11 times. If we look negative 12 to negative 20 percent, that’s only happened once.
And then there have been six times where the stock market, as we talked about earlier has returned less than negative 20%. So, you’ve had more than a 20% loss. It kind of seems like the stock market is boom or bust. You don’t get the average return very often, but over a long period, you do get average returns.
So, something to think about as we’re looking at a negative 20% year, that we’re sitting in 2022 right now. Well, that does not happen very often for one. And there are a lot more really good 20% years than there are negative 20% years. So very interesting numbers that I thought I would bring you today.
[5:12] – Dad Joke of the Week
And next, I wanted to talk about a dad joke because I’m not going to leave you hanging on doing an episode by myself. I’m going to tell a dad joke. Josh isn’t even going to be here to laugh. I think it’s funny because it involves the stock market. And hopefully you’ll get my joke. So, I’ve recently started investing in stocks.
I hope this leads to me finally becoming a bull-ionaire someday, get it? Like bullion, like the little cubes you put to make stock. Yeah. Pretty funny joke. Back to numbers because numbers are the most fun part of my job.
[5:51] – Rolling Returns
So I like to look at rolling returns. So, returns over long periods of time because it takes some of the noise out of the year over year numbers. And I’m going to link an article in the show notes, which look at some of the data we’re going to be talking about today. This is from a provider called Lazy Portfolio ETF. They just had some good data.
I don’t use their data a lot, but they had some good data that goes back to January 1972, all the way through June of 2022. That’s a big period as well but not all the way back to 1926. A little bit shorter here, but this is looking at rolling returns over that time period. And these are annualized.
So if it’s a couple years, you’re looking at essentially the compound average return over the period here. So here are some numbers. Over one year, the average return in that time period is 12.12%. The best one-year return over that time period, and this is not just calendar years, this can be a rolling one-year period occurred from July 1982 to June 1983 and it was 66.73%.
The worst one-year period was March 08 to February 09, and that was 43.33%. Not good. Of that, there have been 21% of periods that were negative, rolling one-year periods. So that’s a big range, 66% on the upside, 43% on the downside. Let’s take that out a little bit further. So suppose you have three years.
Well, if you have a three-year period, your average return has been 11.36% over that time period. The best return was April 1995 to March 1998, and that was 30.7%. Now that’s annualized. The worst was negative 16.22. And that was April 2000 to March of 2003. And only 12% of all rolling three-year periods over that time were negative.
Let’s take it out even a little further to five years. The average five-year return over that period was 11.36%. The best annualized return over a five-year period was 27.25%, and that was August 1982 to July of 1987. The worst, it was negative 6.14% annualized.
And that was from March oh four to February oh nine. Less than 8% of all rolling five-year periods were negative during that time. Let’s take it all the way back out to 10 years. The average 10-year return over that time period has been 11.28%. That’s pretty solid, right?
The best annualized 10-year period has been 18.89%, and that was October 1990 through September 2000. The worst was negative 2.47%. Over that time period, annualized. That’s March 1999 to February 2009. And less than 3% of all rolling 10-year periods have been negative. You’re catching the trend here.
The top and the bottom, the longer you go out, the less big highs you get, but the less big lows you get as well. And what we would like to point out is that there has actually never been since 1972, a 12-year period where you’ve lost money in the stock market. In fact, the average 12-year period return has been 11.17%. Best 12-year period, 18.14% was January 88 to December 99.
The worst 12-year annualized performance of the stock market was January 2000, December 2011, and it was 1.28% positive. So, since 1972, you’ve not lost money over a 12 year period. So what we are saying is that if you’ve got more than 12 years, historically speaking, you’ve probably got a great likelihood of being positive in the stock market.
Now past performance is no guarantee of future returns and we do not believe that history will necessarily repeat itself, but it might look similar. So, let’s go back a couple more longer periods there, 15 years, average 15-year return, 11% per year. Best 15-year period was an annualized average of 18.21 August ’82 to July 1997.
The worst was positive 4.37% was September 2000 to August 2015. Again, none of those were positive. And let’s go all the way to 20 years, 20 years, average return 10.96%. Best period over 20 years was April 1980 to March 2000 with an average annualized return of 17.3%.
Worst annualized performance over 20 years over that period was 4.98% per year. That was April 2000 to March 2020. Again, none of those periods were negative.
[10:55] – Words of Encouragement
So let’s be encouraged and know that if we have a long enough time horizon, if you’re young and you’ve got 10, 20, 30 years to invest, maybe more, or if you’ve been working a while and saving for a while and you still have more than 10 years in your plan, the likelihood of you having a positive return is extremely high.
And just because things look really choppy and uncertain right now, does not mean that they’re always going to be that way. So, when I did this research to prepare for this episode, I was greatly encouraged, and I hope you are too.
And Josh would hit me upside the head if I didn’t mention the importance of having a financial plan. We firmly believe that having a financial plan and working with a qualified advisor is really going to set you apart and set you up to succeed over the long term with your money.
So, we surely hope that you have an advisor and a plan. And if you don’t, we would love to help you out. So, check us out, the Invest with Us tab on our website. We would love to talk to you about your financial situation.
Again, this is Austin Wilson with Hixon Zuercher Capital Management, just hoping that we’ve encouraged you and that you can sit through this choppy time with a little bit more optimism about what the future holds for your portfolio and for the stock market. Thank you for listening.
If you have someone in your life that has been questioning what’s been going on in the markets and all of that, please share this episode with them. Share this episode with your friends, your family, whoever would benefit from that. And always, if you would like to email us any ideas you have about future episodes, we would love to hear them. So, email us at firstname.lastname@example.org. Otherwise, have a great week and I will talk to you next Thursday. Bye.
Thank you for listening to The Invested Dads Podcast. This episode has ended, but your journey towards a better financial future doesn’t have to. Head over to the investeddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe, and don’t miss the next episode. Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management.
All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecast provided here in will prove to be correct.
Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.