The S&P 500, an index that tracks the performance of large U.S. company stocks, has delivered 9.99% average annual returns since 1926 1 . We know that this terrific performance is compensation to investors for taking on risk, and that returns weren’t achieved in a slow and steady manner.
Investors don’t have to look too far back in time to remember the poor performance of the tech bubble in the early 2000s or the financial crisis of 2008. In fact, the 10-year annual return of the S&P 500 ending February 2009 was -3.4%. This means a $10,000 investment made by an unlucky individual in February of 1999 turned into $7,053 by February of 2009. Only investors during the great depression experienced worse 10-year returns, with the ten years ending August 1939 registering an average return of -4.9%.
Many investors could have easily rationalized their way into altering their portfolio after this experience, or pursuing a new investment philosophy. After all, ten years is a long time to realize such disappointing results. As we know however, disciplined investors who stuck with their strategies were rewarded. We now sit ten years from those market lows, officially set on March 9, 2009, and since that time the S&P 500 has delivered 17.37% in annualized returns 2 . For those disappointed, but disciplined investors, this time period would have taken their $7,053 and turned it into $34,991.
There’s no guarantee or road map that can tell us how the market will perform in the future, but what we do know is that having a plan in advance is the most valuable tool we can utilize to accomplish financial goals. Investors are compensated for taking risk, for experiencing volatility, and those that understand that this volatility is normal and expected are the ones that are most likely to see their plan through, in good times and bad.
1. Dimensional Returns, S&P 500 TR Index for the time period of January 1926-December 2018.
2. Morningstar Direct, 10-year returns for the S&P 500 TR Index for the time period of March 9, 2009 – March 8, 2019.