Stock market returns?

I appreciate what you do but find it alarming that you consistently rattle off the “10% stock market return”. This leads listeners to believe that’s what can be expected from the stock market in the future. If one looks at S&P returns for almost any stretch; 10,15,25,50,75, 100 years that return is never seen. Even the if dividends are reinvested mutual fund/management fees must be subtracted which generally outweigh dividends.

True returns are more in the 2-4% range. Let’s be honest.

Terry Says:  Well, you’re honestly WRONG!  Ibbotson, the market historians, now a division of Morningstar, have a chart of long-term returns of a diversified portfolio of large cap American stocks with dividends reinvested, going back to 1926!  I use the updated chart every year in my speeches.  And over that long run, the AVERAGE ANNUAL RETURN WITH DIVIDENDS REINVESTED is 10 percent!

Of course that doesn’t mean a 10 percent return every year — or even over shorter periods of years.  But there has never been a 20-year period — going back to 1926 — when you would have lost money on that portfolio of large cap American stocks with dividends reinvested — even adjusted for inflation!  Those are the Ibbotson results of looking at every 20-year period!

The dividends are a key component of the return, contributing around 40 percent of the total return. And, of course, the assumption is that the investment is made inside a tax-qualified account such as an IRA or  40l(k) so that you don’t pay taxes on the reinvested dividends each year.

I know this is an astounding figure –but it’s true! And it’s the basis for my recommendation that young people let time work for them in a diversified portfolio (the S&P 500 is a proxy) inside their retirement account!

PS I’m going to try to figure out how to post that chart on my website! I’m sure others will be surprised, as well.