I used some T. Rowe Price/Ibbottson research in my recent MSN column, “Under 35? Hurray for the meltdown” to show that long-term returns for stocks kicked butt–even if you started investing right before the Great Depression, which knocked nearly 90% off the Dow.
If I can ever figure out how to get PDFs into WordPress, I’ll post the whole chart, which shows the average annualized returns for every 30-year period starting in 1926.
What it shows is that if you held stocks for 30 years, you not only wouldn’t have lost money, but you would have seen at least an 8% average annualized return.
Some interesting numbers:
- The best 30-year period: 1974-2004, when the S&P 500 averaged a 13.7% average annual return
- The best 30-year period, adjusted for inflation: 1932-1961, where the real return averaged 10.6%
- The worst 30-year period: 1929-1958, when the S&P averaged 8.5%
- The worst 30-year period, adjusted for inflation: 1965-1994, where the real return was just 4.4% (although the nominal return was 10%)
- The percent of 30-year periods where S&P 500 returns exceeded 10%: 81.5%
- The percent of 30-year periods where the return was greater than zero: 100%
The take-away? If you’ve got 30 years until retirement, you’ve got plenty of time to recoup your losses and profit from today’s low prices. If you’re closer than that, I’d recommend a session with a fee-only financial planner to make sure you have enough stock exposure to capture the gains sure to come along with bonds and cash to cushion any downdrafts.