Lessons from 96 Years of US Market Returns

The US stock market, particularly the S&P 500, offers a treasure trove of insights for long-term investors. Analyzing its performance from 1928 to 2024 reveals the power of patience, the inevitability of market cycles, and the consistent rewards of staying invested over the long term.

A Century of Market Cycles

The data underscores the ups and downs of the market over nearly a century.

The Tough Times (1930-39, 2000-09):

• During the Great Depression (1930s), the market delivered a negative CAGR of -1% over the decade.
• Similarly, the 2000s saw another tough decade, also with a -1% return due to the Dotcom crash and the Global Financial Crisis.

Boom Periods (1950-59, 1980-89, 2010-19):

• Post-World War II (1950s) saw a strong recovery with 19% CAGR.
• The 1980s delivered 18% CAGR during a period of economic expansion.
• From 2010-2019, the market returned 13% CAGR, driven by technology and innovation.

The lesson: tough decades test patience, but they are often followed by robust recoveries.

The Power of Staying Invested

The probability of earning positive returns grows dramatically with time:

1-Year Holding Period: 73% of the years yielded positive returns, with a maximum return of 53% and a minimum of -43%.

5-Year Holding Period: The probability of positive returns rises to 88%, with a maximum CAGR of 28.5% and a minimum of -12%.

10-Year Holding Period: Positive returns occur 94% of the time, with a maximum CAGR of 20.1% and a minimum of -1.6%.

20-Year Holding Period: Every 20-year period yielded positive returns, with a maximum of 17% CAGR and a minimum of 8.2%.

Even in the worst-case scenario, long-term investors have historically seen positive outcomes.

Key Takeaways for Investors

Don’t Focus on Short-Term Movements: Daily market fluctuations can be unsettling, but they are irrelevant for long-term goals.

Patience Pays Off: The data proves that staying invested for 10, 15, or 20+ years virtually guarantees positive returns.

Ride Out the Tough Times: Decades like the 1930s and 2000s tested investors, but those who held on were rewarded in subsequent decades.

Invest Regularly: Consistent investing over time, such as through SIPs, helps mitigate volatility and takes advantage of compounding.

Follow a Strategy: Whether through a smallcase, mutual fund, or professional portfolio manager, adhering to a sound strategy ensures you stay aligned with market performance or even outperform it.

The Importance of a Long-Term Vision

The S&P 500 has demonstrated remarkable resilience, rewarding disciplined investors who think in decades, not months. Even those who invested at market peaks, such as 1929, earned positive returns over 20-30 years. This underscores the importance of patience and a long-term vision in wealth creation.

WeekendInvesting launches – PortfolioMomentum Report

Momentum Score: See what percentage of your portfolio is in high vs. low momentum stocks, giving you a snapshot of its performance and health.

Weightage Skew: Discover if certain stocks are dominating your portfolio, affecting its performance and risk balance.

Why it matters
Weak momentum stocks can limit your gains, while high momentum stocks improve capital allocation, enhancing your chances of superior performance.

Disclaimers and disclosures : https://tinyurl.com/2763eyaz