Historical rates of return in an entirely new context.
A super bloom as captured in the featured photo, is a rare botanical phenomenon where an unusually large number of wildflowers sprout and bloom simultaneously after a period of above-average rainfall, low winds with moderate temperatures following dry conditions. Many wildflower seeds can remain dormant for years or even decades. The heavy winter rains wash away the protective coating on these seeds allowing them to sprout.
All of these specific environmental conditions must align perfectly to create the idyllic super bloom. The explosive growth of a super bloom, however, followed by dry conditions creates a fuel load that significantly increases the risk and severity of any subsequent wildfires. Wildfires do not directly cause a super bloom, some unforeseen event, circumstance or ill-guided person does.
After I left the corporate world, I had time to create this one sheet view of historical returns. There are a plethora of graphs and charts that depict this, but I wanted to see the numbers in a more see-it-to-believe-it view rather than a summarized trend or the monotony of lifeless numbers cascading downward in a digital data dump. I’ve updated it since 2019, included my current sources and have made it come to life in a relatable context.
Historical Returns SP 500 Bonds
I began investing in a 401(k) in the early 1990’s when I started my first real job but didn’t have any understanding of what I was truly investing in. I was putting my husband through graduate school (PhD), and we had recently moved to Atlanta after growing up in towns that didn’t even have a traffic light. In the late 1990’s, I was completely oblivious to the rare phenomenon when 3 almost consecutive “super blooms” of high sprouting rates of return occurred for the stock market as measured by the S&P 500 Index.
Back then, we had newspapers and the daily news stock report with 401(k) statements mailed once a quarter. It was easy not to pay attention even when the year 2000 rang in and we all thought the world was going to end. We had just bought our first house and had used part of my growing 401(k) funds as a down payment. The 401(k)-loan interest rate was ridiculously high at 10% but my husband had graduated and was working so paying that off was the highest priority.
Our 1844 house required a lot of renovations and our focus. Once again, we were somewhat oblivious to the negative stock market rates of return in the early 2000’s and the severity of the subsequent wildfire in 2002. Then another super bloom occurred in 2003.
We became more aware of the financial crisis and wildfire of 2008 attempting to sell our house in Albuquerque and the recovery super bloom in 2009 when it finally sold.
Over the last 85 years, there are only 3 single years that clearly stand out: 1985 and 1995 for super blooms and the recent year of 2022 for wildfires. Stock market super blooms far exceed the number of wildfires. The 20-year averages were interesting to calculate in that maybe 2020 – 2029 will follow the same pattern as the prior decades in recovery.
I’ll let you all know if we plan to move again in 2028 especially that we moved in 2022.
The longer the time frames the more consistent the annual rates of returns. My average personal rates of return from 1993 – present only differ slightly from the averages starting in 1940 – present.
So many hate the thought of not knowing how the market will unfold so much that they would rather imagine a catastrophe than deal with the unpredictable nature of it. The safety of bank accounts or selling everything off when the fire is raging is more appealing to them.
No one knows when the next wildfire will rage or the unforeseen event or circumstances that will cause it. We only have the present and the past to rely on and both make a pretty good case to remain optimistic.
“Those who understand what the past can teach have a better grasp of what the future may be. With capital at risk, it is crucial to understand this in the flower of all its ramifications.” -Barry Ritholtz About Time . . . – The Big Picture
A Short History of the S&P 500 – A Wealth of Common Sense
The S&P 500 rates of return will differ based on the number of years in the calculations and whether the Nominal rate of return or the Real Total Inflation Adjusted rate of return was used.
S&P 500 Annual Returns and Historical Performance | The Motley Fool