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Comment by jayess | Hacker News Reader

10%/year investment return is virtually impossible these days.

I used this calculator to compute the CAGR for the S&P 500 from 1995-2015. It calculated the average annual return to be 11.5% before inflation so roughly 9% after. You are correct that 10% is difficult but you can get really close.

http://www.moneychimp.com/features/market_cagr.htm

CAGR isn't really relevant on a per-person basis, though. It's not like we all receive our investment capital as a lump sum at the beginning of our savings history. This actually makes a huge difference and makes CAGR returns unrealistic.

I think you are looking at the arithmetic average, which isn't very useful for the following reason:

Year 1: 100% gain Year 2: 50% loss

The arithmetic average here is 50%, which the geometric average is 0%. The CAGR listed is going the correct metric to use but that is not 9% after inflation using the date range you provided. I get 7.42% for 1/1/95 - 12/31/14 after inflation and dividends are factored in. Not bad by any stretch of the imagination, though!

S&P 500 average return since the early 1900s has been 12%<. But... that includes volatility. Still it doesn't seem like an impossible number - the past 6 years have all met that growth target.

The last 6 years have been a bull market after a giant crash. What about the last 10 years?

S&P return since 2000 was 2.2% on average, 0.05% (!!) inflation-adjusted. Last decade was 5.3%, or 3.2% inflation adjusted.

Good point - I took "these days" to mean the past few years.

Total return is ~4.3% nominal ~2% real annualized since Jan 2000, ~7.5% nominal ~5.4% real annualized since Jul 2005. Total return isn't a perfect measurement (particularly due to taxation of dividends), but its a much more useful number. Over a long term, dividend reinvestment makes a huge difference.

"The S&P 500 index in its present form began on March 4, 1957" says Wikipedia.

And its return since the 50s is 7% in real terms. And there were decades at a time (including the 2000-2010 period, where real return was -3.4%) that significantly underperformed that), so it's not even a reliable 7% a year, which you'd need for these calculations to work out.

It began in 1928 in its original form. I mentioned volatility in my original comment - but if you have a large portfolio and low expenditures you can afford many down years.

For additional information: www.firecalc.com

"The past 6 years" means you're starting in 2009, which was the depths of the recession. If you look at the past 8 years instead, your average return would be a lot less, especially if you had to take out money to live on while the index was at the bottom.

On an inflation-adjusted basis, the S&P 500 has not grown at all for the past 15 years:

http://www.multpl.com/inflation-adjusted-s-p-500

The average rate of return for the past 50 years is pretty small. You can make almost any rate of return look reasonable if you cherry-pick the right timeframe, but the long-term average doesn't look good at all.

That chart doesn't take into account dividends. At the end of 2014, the 15 year annualized return of the S&P 500 was 4.24%. The 20 year annualized return was 9.85%.

SO, while you were claiming the above poster was using bad numbers by using "the last 6 years," you are similarly using biased data by looking at the past 15 years because that's the eve of the dot com bust.

Good point about the dividends. Do your numbers take inflation into account?

Edit: looks like without inflation, if this calculator is to be believed:

http://dqydj.net/sp-500-return-calculator/

The annualized return for the past 15 years with both dividends and inflation is under 2%.

I know that I'm cherry-picking by using a 15 year period. That was my entire point: that you can cherry-pick to find almost any rate of return.

However, that particular period is still pretty relevant. If your plan is to spend 10% of your savings per year, then a 15-year period of zero (or just small) returns will wipe you out. Even if it bounces back afterwards, you're still screwed.

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