---

• What are realistic return expectations?
• How do markets react to economic events?
• What role does time play in mitigating risk?

---

• S&P 500 (1926-2024): Since reliable data became available in the 1920s, the S&P 500 has delivered an average annualized return of approximately 10% before inflation and 7%-8% after adjusting for inflation (assuming a 2%-3% average inflation rate).
  • Including dividends reinvested, total returns are closer to 10%-11% annually.
  • Example: A $1,000 investment in 1926 would grow to over $14 million by 2024 with dividends reinvested (nominal terms).
• Compounding Effect: The power of compounding drives these gains, with reinvested dividends accounting for roughly half of total returns over time.

1. The Roaring 1920s: The DJIA soared from 63 in 1921 to 381 in 1929 (+504%), fueled by post-WWI optimism and speculation, before crashing in the Great Depression.
2. Great Depression (1929-1932): The DJIA plummeted 89% from its peak, bottoming at 41, highlighting the risks of unchecked speculation.
3. Post-WWII Boom (1945-1965): The S&P 500 grew at an annualized rate of ~12%, driven by industrial expansion and consumer demand.
4. Stagflation (1970s): High inflation and stagnant growth led to flat or negative real returns, with the S&P 500 averaging just 1.6% annually after inflation from 1973-1982.
5. Tech Boom (1990s): The S&P 500 returned ~18% annually from 1990-1999, peaking with the dot-com bubble, before crashing in 2000-2002 (-49% peak-to-trough).
6. Great Financial Crisis (2007-2009): The S&P 500 fell 57% from its 2007 peak to its 2009 low, followed by a robust recovery (2009-2020: ~13% annualized).
7. Post-COVID Rally (2020-2024): After a 34% drop in March 2020, the S&P 500 rebounded sharply, gaining over 100% from its low by late 2024, fueled by stimulus and tech growth.

• Average annual volatility (standard deviation) for the S&P 500 is ~15%-20%.
• Major drawdowns (peak-to-trough declines):
  • 1929-1932: -89% (DJIA).
  • 2000-2002: -49% (S&P 500).
  • 2007-2009: -57% (S&P 500).
• Corrections (10%+ declines) occur roughly every 1-2 years; bear markets (20%+ declines) happen every 5-7 years on average.

---

• U.S. Treasuries: Long-term government bonds have averaged 5%-6% annualized returns since the 1920s, with lower volatility (5%-10%) than stocks.
  • Real returns: ~2%-3% after inflation.
  • Notable Periods: Yields spiked to 15% in the early 1980s (high returns for bondholders), then fell to near-zero post-2008, compressing returns.
• Corporate Bonds: Higher yields (6%-8%) but more risk, especially during recessions.

• 3-month Treasury bills averaged 3%-4% since 1926, barely keeping pace with inflation (3%), making them a low-return, low-risk option.
• Real returns: ~0%-1%.

• Residential real estate (via Case-Shiller Index) has grown ~3%-4% annually since the 1970s, with regional variations. REITs, a liquid proxy, have averaged ~9%-10% since the 1970s, including dividends.

• Gold’s annualized return since 1971 (post-gold standard) is ~7%-8%, but with high volatility and long periods of stagnation. It excels during inflation or crises but lags in growth eras.

---

1. Economic Growth: GDP growth drives corporate earnings, boosting stock returns (e.g., post-WWII expansion).
2. Inflation: Erodes real returns; the 1970s showed stocks struggling with high inflation, while bonds thrived in the 1980s as rates fell.
3. Interest Rates: Low rates (e.g., 2010s) fuel stock and real estate gains; high rates (e.g., 1980s) favor bonds.
4. Technological Innovation: Tech booms (1990s, 2010s) propelled equity markets, especially growth stocks.
5. Geopolitical Events: Wars, crises, and pandemics (e.g., 2020) cause short-term volatility but often lead to recoveries.
6. Monetary Policy: Federal Reserve actions, like QE post-2008, have supported markets, while tightening (e.g., 2022) can trigger corrections.

---

1. Time Reduces Risk: Over 20+ years, the S&P 500 has never delivered a negative nominal return, with real returns averaging 6%-7%. Short-term losses fade with patience.
2. Diversification Matters: Stocks beat bonds and cash long-term, but blending assets smooths volatility (e.g., 60/40 stock-bond portfolio averages ~8%).
3. Bear Markets Are Temporary: Every crash has been followed by a recovery, often exceeding prior highs within 2-5 years.
4. Dividends Drive Returns: Reinvesting dividends has historically doubled stock market gains over holding periods.
5. Inflation Erodes Cash: Cash underperforms over time, losing purchasing power to inflation.

---

• Best Decade: 1950s (S&P 500: ~19% annualized).
• Worst Decade: 1930s (S&P 500: ~0% nominal, negative real).

---

• Recent Trends: The S&P 500 has averaged ~12%-13% annually since 2009, buoyed by tech giants (e.g., Apple, Nvidia) and low rates. However, 2022’s bear market (-18%) reminded investors of cyclical risks.
• Current Environment: With inflation moderating from 2022 peaks and rates stabilizing, stocks remain attractive, though valuations (e.g., S&P 500 P/E 20-25) suggest tempered future returns (6%-8% real).
• Lessons Applied: Diversified ETFs (e.g., VTI) and dividend reinvestment remain popular, reflecting historic resilience.

---

1. Set Expectations: Expect 7%-10% nominal stock returns over decades, with bonds at 3%-5%.
2. Plan Horizons: Short-term (1-5 years) favors bonds or cash; long-term (10+ years) favors stocks.
3. Manage Risk: Allocate based on risk tolerance—e.g., 80/20 stocks/bonds for growth, 50/50 for balance.
4. Stay Disciplined: Historic recoveries underscore the value of staying invested through downturns.

---