Looking at Long-Term Returns

Here’s more from the Ibbotson Yearbook. This chart shows the long-term total return (meaning dividends included) of small stocks, large stocks, corporate bonds, government bonds, T-bills and inflation since 1925.

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After 87 years, small stocks were the winner at 11.95% annualized. Large-caps came in second at 9.85% annualized. Close together were long-term corporates at 6.11% and long-term government bonds at 5.69%. Treasury bills had a 3.54% annualized return. Finally, inflation was annualized at 2.97%.

This means the large-cap stocks have, on average, doubled every 7.38 years. Let me be clear that I think it’s a big mistake for investors to use these historical numbers to set future expectations. Large-cap stocks were down from August 1929 to December 1944, from January 1966 to December 1974 and from July 1997 to February 2009. For an individual investor, those time periods must have seemed pretty long-term.

Posted by on April 3rd, 2013 at 1:55 pm


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