The Real Voyage Of Long Term Stock Market Averages

 

A lot of times with the SP500 we talk about averages over periods of time for example 1yr, 10yr etc.The SP500 has averaged 15.85% in the last 5yrs, 9.49% in the last 10 yrs, and 6.09% in the last 15 yrs. So without digging deeper into the behavior of the market and fluctuations these returns looks pretty good.

 

But let us look at how a retired couple taking an income would have done in the last 15 yrs. Frank and Ellen invest 1million dollars in the SP500 in 2000 and started withdrawing $50,0000 (or 5%) per year and increase this by 3% each year. In 2015 they would have $40,920 left in their account.

 

 

YEAR

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Bal. Jan 1st

 $1,000,000

 $  863,550

 $  715,497

 $  516,050

 $  593,747

 $  595,949

 $  564,400

 $  584,390

 $  551,603

 $  307,607

 $  306,498

 $  275,342

 $  210,479

 $  161,462

 $  116,550

Income Taken*

 ($ 50,000)

 ($ 51,500)

 ($ 53,045)

 ($ 54,636)

 ($ 56,275)

 ($ 57,964)

 ($ 59,703)

 ($ 61,494)

 ($ 63,339)

 ($ 65,239)

 ($ 67,196)

 ($ 69,212)

 ($ 71,288)

 ($ 73,427)

 ($ 75,629)

Bal. Jan 3rd

 $ 950,000

 $ 812,050

 $ 662,452

 $ 461,414

 $ 537,472

 $ 537,985

 $ 504,698

 $ 522,896

 $ 488,264

 $ 242,368

 $ 239,303

 $ 206,130

 $ 139,191

 $  88,035

 $  40,920

.

SP500

-9.10%

-11.89%

-22.10%

28.68%

10.88%

4.91%

15.79%

5.49%

-37.00%

26.46%

15.06%

2.11%

16.00%

32.39%

13.69%

Reverse Order Of Returns

 

Now let's say the timeline is reversed and the order of returns were the opposite beginning with 2014's returns and heading backwards. The long term average is exactly the same at 6.09%. Frank and Ellen would have ended up with just over 1million dollars 15 years later. This is fascinating because they earned the same rates of return, but it was simply reversed.

 

 

YEAR

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

Bal. Jan 1st

 $ 1,000,000

 $ 1,080,055

 $ 1,361,704

 $ 1,518,044

 $ 1,494,286

 $ 1,654,575

 $ 2,019,075

 $ 1,234,404

 $ 1,237,303

 $ 1,359,334

 $ 1,357,635

 $ 1,430,839

 $ 1,752,143

 $ 1,309,386

 $ 1,089,003

Income Taken*

 ($ 50,000)

 ($ 51,500)

 ($ 53,045)

 ($ 54,636)

 ($ 56,275)

 ($ 57,964)

 ($ 59,703)

 ($ 61,494)

 ($ 63,339)

 ($ 65,239)

 ($ 67,196)

 ($ 69,212)

 ($ 71,288)

 ($ 73,427)

 ($ 75,629)

Bal. Jan 3rd

 $    950,000

 $ 1,028,555

 $ 1,308,659

 $ 1,463,408

 $ 1,438,011

 $ 1,596,611

 $ 1,959,372

 $ 1,172,911

 $ 1,173,965

 $ 1,294,095

 $ 1,290,440

 $ 1,361,628

 $ 1,680,854

 $ 1,235,959

 $ 1,013,374

SP500

13.69%

32.39%

16.00%

2.11%

15.06%

26.46%

-37.00%

5.49%

15.79%

4.91%

10.88%

28.68%

-22.10%

-11.89%

-9.10%

Disclosure;  The Standard & Poor's 500 (S&P 500) is an unmanaged index of 500 common stocks traded on the New York Stock Exchange that is widely used as an indicator of market trends. Past performance does not guarantee future results.   The performance of these indexes do not reflect any fees and charges associated with investing products.   It is not possible to invest directly in an index.   

 

 

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