5 min read
The S&P 500 is a stock market index that tracks the 500 largest publicly traded companies in the U.S. and captures about 80% coverage of the total U.S. market cap.
Warren Buffett is a long-time advocate of S&P 500 index funds. He believes that investors can outperform most actively managed funds if they simply buy and hold shares in an S&P 500 index fund for several decades.
He even once made a bet that the S&P 500 could outperform any group of actively managed funds over a ten-year period and easily won that bet.
Today I’ll take a look at how the S&P 500 has performed since 1928. I’ll look at how it performed on a yearly basis as well as how it performed during every 10, 20, 30, and 40-year investment period since 1928. I’ll be using inflation-adjusted annual returns.
Let’s jump in!
S&P 500 Inflation-Adjusted Annual Returns
This table shows the inflation-adjusted annual returns for the S&P 500 from 1928 to 2017:
Here’s a visual look at the S&P 500 inflation-adjusted returns for every year since 1928:
Some Interesting Observations
- The inflation-adjusted annual return of the S&P 500 varies based on the starting year you choose to look at. For example, the inflation-adjusted annual return (let’s call this IAAR, for short) from 1928 to 2017 was 6.5%. The IAAR from 1932 to 2017 was 7.3%. The IAAR from 1942 to 2017 was 7.6%. Depending on which time period you look at, the long-term IAAR for the S&P 500 is somewhere between 6% and 8%.
- During the best year (1954), the S&P 500 gained 53.6%.
- During the worst year (1931), the S&P 500 lost 38.1%.
- The S&P 500 experienced a gain of 25% or more in 19 out of 90 years (21.1% of years)
- The S&P 500 experienced a loss of 10% or more in 17 out of 90 years (18.9% of years)
Long-Term S&P 500 Returns
While it’s interesting to look at S&P 500 returns for individual years, most people don’t invest in index funds for one-year periods; they invest for several decades. This is why it’s more interesting to look at decade-long annualized returns.
The table below shows the 10, 20, 30, and 40-year S&P 500 annualized returns for every year since 1928:
Here’s a summary of these returns:
10-Year Investment Periods
This chart shows the S&P 500 annualized returns for every 10-year period since 1928:
During the best 10-year period (1949-1958), the S&P 500 delivered 17.9% annual returns.
During the worst 10-year period (1999-2008), the S&P 500 delivered -3.8% annual returns.
The median annual returns for 10-year periods since 1928 has been 6.5%.
The S&P 500 delivered negative annualized returns in 11 out of 81 10-year periods (13.6% of 10-year periods) since 1928.
20-Year Investment Periods
This chart shows the S&P 500 annualized returns for every 20-year period since 1928:
During the best 20-year period (1980-1999), the S&P 500 delivered 13.2% annual returns.
During the worst 20-year period (1929-1948), the S&P 500 delivered 0.6% annual returns.
The median annual returns for 20-year periods since 1928 has been 7.3%.
The S&P 500 never delivered negative annualized returns in any 20-year period.
30-Year Investment Periods
This chart shows the S&P 500 annualized returns for every 30-year period since 1928:
During the best 30-year period (1932-1961), the S&P 500 delivered 10.1% annual returns.
During the worst 30-year period (1965-1994), the S&P 500 delivered 4.3% annual returns.
The median annual returns for 30-year periods since 1928 has been 7.1%.
The S&P 500 never delivered negative annualized returns in any 30-year period.
40-Year Investment Periods
This chart shows the S&P 500 annualized returns for every 40-year period since 1928:
During the best 40-year period (1933-1972), the S&P 500 delivered 8.8% annual returns.
During the worst 40-year period (1969-2008), the S&P 500 delivered 4.2% annual returns.
The median annual returns for 40-year periods since 1928 has been 6.5%.
The S&P 500 never delivered negative annualized returns in any 40-year period.
So there you have it. The S&P 500 has typically delivered 6-8% annual returns over the long haul even after inflation, although some periods have delivered much higher returns than others.
It’s encouraging to see that the S&P 500 has never experienced losses during any 20-year period since 1928 and that during the worst 30-year period, the market still delivered 4.3% annual returns even after inflation.
It’s difficult to predict stock market returns going forward, but if the future resembles the past, then investors who maintain a long-term investment horizon and resist the urge to buy and sell excessively will likely be rewarded by the market.
Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.
Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.
Although the bulk of his net worth is invested in index funds, his favorite place to invest in individual stocks is M1 Finance, a site that allows you to build a custom portfolio of stocks for free.
His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.
His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.
His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.
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