Equity Markets In The 21st Century: +1.39% Annualized Real Return

Tyler Durden's picture

Via Doug Short of Advisor Perspectives,

Here is a update in response to a standing request from David England, a retired professor now actively educating investors through his Trader's Eye website. In his presentations, he likes to disprove the standard message of Wall Street, "Don't worry! The market will always come back." I furnished David with some charts, and I now share them with regular visitors to my Advisor Perspectives pages.

Specifically, David had asked for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. So I created two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which I usually just refer to as the CPI). The charts below have been updated through the July 3rd close.

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The charts require little explanation. So far the 21st Century has not been especially kind to equity investors. Yes, markets usually do bounce back, but often in time frames that defy optimistic expectations.

The charts above are based on price only. But what about dividends? Would the inclusion of dividends make a significant difference? I'll close this post with a reprint of my latest chart update of the S&P 500 total return on a $1,000 investment at the 2000 high.

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Total return, including reinvested dividends, certainly looks better, but the real (inflation-adjusted) purchasing power of that $1,000 is currently, over 14 years later, only 218 dollars above break-even. That equates to a 1.39% annualized real return.

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fonzannoon's picture

The sheeple dollar cost average in every 2 weeks via their 401k. I wonder how much better a chart illustrating that would look?

Dr. Engali's picture

They also panic out at the bottom and they miss most of the rally before they buy back in... usually near the top.

fonzannoon's picture

agreed. the average investor rate of return is awful for those reasons. But a random 1k investment in 2000 with no additions just does not seem like a great representation of the market returns for the average guy either. But this is why we need skynet in place and the 401k's in the hands of a fiduciary that won't let the sheeple's emotions get the better of them. So they can enjoy the 8% annual avg return.

NoDebt's picture

Can't wait to see that chart 10 years from now with July 3rd, 2014 as the starting point.


fonzannoon's picture

We should start it at July 20th (well monday the 21st). Lagarde says the blue pengiun goes bowling at midnight on the 20th. so we should go from there.

Grande Tetons's picture

Fuck that orange bitch and her numbered freak show. 

Gold bitch. 


Pladizow's picture

And with shadow stat numbers?

And are dividends included inthe  SPY?

max2205's picture

Doug short is awesome....a great addition here...btw he has been on the right side of the market for years

fonzannoon's picture

One guy on here had the honesty to say he would take a run at her. I admire his honesty and that's probably how you would have to do it. It would have to start with an open field tackle.

NoDebt's picture

OK.  I'm flexible on that.

Regarding the 401k stuff.... good luck getting plan sponsors to give up their 404(c) safe harbor protection.  That's the provision in ERISA that absolves plan sponsors of any liability for losses (or lack of gains) if they offer the participants the ability to choose on their own from a menu of investment choices that can "materially alter their expected risk/return profile."


fonzannoon's picture

Stop hijacking the thread with 401k/market stuff. How would you go about taking a run at lagarde? I think the guy is right and you literally have to go with a running start. However the sock full of quarters is not a terrible idea.

NoDebt's picture

Look, I'm basically a whore anyway.  Pay me enough, I'll nail anything.  Without the financial incentive, sorry, no tickie no washie.

To answer your question- Rohipnol in skin-permeating form dropped into her tanning lotion.  OK?  Ya happy now?

NoDebt's picture

Heh heh heh.  I forgot to add "right there on the tanning bed, wearing a full-body condom."

buzzsaw99's picture

assuming they sold today instead of waiting for the next crash to sell (like they will)

lincolnsteffens's picture

Well, what if you don't have a tax exempt account and you sell? Now you are going to get taxed, what is it 15% or is it back to 20% long term capital gains. Even at 15% times the nominal 40% increase means you gotta pay %15 of the nominal "profit". Now after taxes you didn't make no stinkin' real profit. That leaves you down.  Now that is not much to be down in buying power, but you sure as hell ain't up! As for mutual funds with yearly expenses? Oh yeah, with mutual funds you would have gotten hit with capital gains taxes all the years you held while the market was tanking and everyone bailed out but you?

Is the math I did in my head correct?


philosophers bone's picture

So the stock market is the perfect inflation hedge?   /s off


Welcome to the 1% bitchez!!

Unknown Poster's picture

BTFATH in 2000, didn't seem such a great strategy. 2014 is different, BTFATH?

timmeh's picture

and 2009-2014 annualized return is ~20%. so fucking what?

timmeh's picture

yep, i mean *real* return. look at the inflation-adjusted chart. 

depending on your initial point in time, you can come up with whatever return you want. this shit means nothing. 

Comte d'herblay's picture

As in all things, good or perfect TIMING is indispensable.

Long term averages over many years are not very helpful in deciding what to do, or don't, except maybe beisobol. 

What does it mean that Arnie Palmer could drive a ball 350 yds many decades ago consistently? If he had the clubs and balls available to him in 2000 he'd likely have a 400 yd average, and if he ad today's burners he could swing it as fast as Woods or better for 450 yards.

If you're going to bet on him now (he being the same age as he was back then) which 'average' are you going to go with??

I'll take his 'average' over the short term of about 3 yrs. Anything older than that is only a very rough guide to his performance, and the Markets'. 



buzzsaw99's picture

OMG CNBC just dug up BIRINYI


smlbizman's picture

did that mother fucker eat kermit the frog?

JustObserving's picture
No ‘gold rush’: Germany keeps reserves in the US

Germany’s plan to bring back the nation’s gold reserves to Frankfurt by 2020 has fizzled, and instead has for now decided to leave $635 billion of gold in US vaults.

Home to the world’s second largest gold reserves, worth $141 billion, Germany only keeps about one third of its gold ‘at home’, the rest is abroad. 45 percent is in the US Federal Reserve in New York, 13 percent in London, 11 percent in Paris, and only 31 percent in the Bundesbank in Frankfurt.

“The Americans are taking good care of our gold, we have no reasons for mistrust,” Nobert Barthle, the German Parliament Budget spokesman, told RT.


pods's picture

Why do I see Kevin Bacon saying "remain calm" after reading that?

So Germany, after public outcry decides to repatriate gold and after a pittance is moved decide it is better held in NYC?

I wonder if they think anyone is falling for that line of BS?


daveO's picture

So, that attack against the French bank served a dual purpose?

motorollin's picture

I thought Bloomberg ran that same story, then some German guy came out and refuted that.

Turin Turambar's picture

Uh, sure.  Of course, this is predicated on the CPI being a realistic number, not some phony, manipulated, government propaganda scam.  :-O

overexposed's picture

Imagine how much worse things are IN REALITY.  Holy cow...

Gaius Frakkin' Baltar's picture

Haha... yeah, using their bogus inflation numbers and and the very top of this latest bubble, they can only boast 1.39% annual real return... who would be so stupid to play this game? Oh yeah... just about anyone with some extra Monopoly Money. Fucking pathetic...

Planet of the Apes

I Write Code's picture

Yes the 2000 peak was very high and broke the old saw that it doesn't matter when you invest.

But if you even spread that acquisition over any four quarters, it would probably boost the yield over 2%.  Still not soaring riches, but 2% real growth over inflation is OK.

bbq on whitehouse lawn's picture

In 2000 you could buy 4 pounds of pasta for $1 or 4000 pounds for $1000 now its $5 for 3 pounds or 4, 12oz pak for $5. That same $1000 investment in dry box pasta would now be worth $6,664.
So hows that for a return, or a loss to purchasing power.

daveO's picture

Gold was $279/oz. The above charts are using CPI(gov. faked stats).

chomu's picture

Yawnnnnn, ...sounds like fodder for brokers to go and sell more VA's to the masses and get their 7% rips..

riskon.then.riskoff's picture

these charts mean nothing, it's easy to take a top and say no return.

take the low of mid-March 2003 and do the same exercice.

You take the TOP,i take the BOTTOM ---> zero-sum game