In a few short months we will close the books on another decade. I am ten years older; I have a little less hair (ok a lot) and hopefully I’m a little wiser. Time really does fly!
Investors in U.S. stocks have done very well over the past 10 years. The S&P 500 has returned about 13% a year since the start of 2010. This is an excellent rate of return, and it’s natural to ask, “Is this as good as it gets?” I bet several investors would be shocked to hear that 13% a year is pretty mediocre compared to other bull market decades. As you can see from the chart below, the bull market decades of the 50’s, 80’s and 90’s all delivered far superior annualized returns.
The 2000 decade was a tough one for all investors with the bursting of the internet bubble and the Great Financial Crisis. It is interesting to see that the performance of that decade was on par with that of the Great Depression in the 1930’s.
Needless to say, we don’t know what the future will bring. However, if the future is anything like the past, it is likely that the S&P 500 has more positive returns in store for investors. After the Great Depression, the S&P 500 delivered six decades in a row of positive performance. Not every year was a winner, of course, but as you can see, patient investors were well rewarded.
One takeaway from this exercise is that, when investing, it can be helpful to think in terms of decades, and not individual years. Stocks represent a claim on the future cash flows of a company. For the most part, these future cash flows are dependent upon the economic output of the country in which a company operates. Since the Great Depression, the U.S. economy has expanded tremendously. While we fully expect periods of contraction, we remain positive on the long-term prospects for the greatest economy in the world and, therefore, on those for stocks as well.
