Unexpectedly Intriguing!
February 8, 2007

Yesterday, when we unveiled our chart showing the worst ever recorded inflation-adjusted annualized rates of return for an investment made in any month beginning in January 1871 through December 2002 and held for anywhere from 1 to 50 years, we indicated that we were really putting the cart before the horse in posting our chart first.

The chart is really the result of our asking the question: "When were the worst years for any investor to put money into the S&P 500 stock market index?" Today, we'll put the horse back in front of the cart and actually answer the question we originally asked!

We searched through our spreadsheet version of our S&P 500 database, which contains all the data for the index for each month since January 1871, looking at the results for any hypothetical investment launched in each month starting in January 1871 onward and held for everywhere from 1 through 130 years. Then, we identified the month and year for each one of these holding periods in which the investment began and ended.

In our analysis, we assumed full reinvestment of dividends, adjusted for inflation, and did not consider the effects of taxes or commissions and fees, which vary considerably over time.

The results for holding periods between 1 and 50 years are summarized in the dynamic table below. We opted to only post this portion of the data since it covers the typical investing lifespan of real-life human beings! You may sort the data by clicking the column headings - clicking the column heading once will sort by the selected category from low to high values, and clicking a second time will re-sort the table's data from high to low values.

Worst Case Inflation Adjusted S&P 500 Rates of Return
for Investment Holding Periods of 1 to 50 Years
Holding Period (Years) Starting Date
(Year-Month)
Ending Date
(Year-Month)
Nominal Return (%) Inflation Rate (%) Real Return (%)
1 1931-06 1932-06 -62.2 -09.9 -52.3
2 1930-06 1932-06 -49.3 -10.0 -39.3
3 1929-07 1932-07 -40.2 -07.7 -32.5
4 1928-06 1932-06 -25.2 -05.6 -19.6
5 1915-12 1920-12 00.2 13.5 -13.3
6 1968-12 1974-12 -04.3 06.5 -10.8
7 1967-12 1974-12 -01.6 06.3 -07.9
8 1912-12 1920-12 02.4 09.1 -06.7
9 1911-06 1920-06 04.0 10.2 -06.2
10 1911-06 1921-06 02.2 07.2 -05.0
11 1909-12 1920-12 02.2 06.2 -04.0
12 1930-04 1942-04 -03.0 00.5 -03.5
13 1929-09 1942-09 -03.2 00.4 -03.6
14 1968-06 1982-06 04.9 07.7 -02.8
15 1905-12 1920-12 03.4 05.7 -02.3
16 1966-02 1982-02 05.4 07.0 -01.6
17 1965-08 1982-08 05.6 06.9 -01.3
18 1964-07 1982-07 05.6 06.6 -01.0
19 1901-06 1920-06 05.0 05.5 -00.5
20 1901-06 1921-06 04.1 04.3 -00.2
21 1911-06 1932-06 02.5 02.1 00.4
22 1899-03 1921-03 05.6 04.5 01.1
23 1909-06 1932-06 02.6 01.6 01.0
24 1908-06 1932-06 03.8 01.9 01.9
25 1907-06 1932-06 03.8 01.6 02.2
26 1906-06 1932-06 03.1 01.8 01.3
27 1905-06 1932-06 03.5 01.9 01.6
28 1892-06 1920-06 06.5 04.0 02.5
29 1903-06 1932-06 04.2 01.8 02.4
30 1902-06 1932-06 03.6 01.7 01.9
31 1901-06 1932-06 03.6 01.9 01.7
32 1889-08 1921-08 05.7 02.7 03.0
33 1899-06 1932-06 04.7 02.0 02.7
34 1886-12 1920-12 05.6 02.7 02.9
35 1886-08 1921-08 05.6 02.4 03.2
36 1906-04 1942-04 05.2 01.8 03.4
37 1905-04 1942-04 05.3 01.8 03.5
38 1894-06 1932-06 05.5 01.9 03.6
39 1881-06 1920-06 05.5 02.0 03.5
40 1892-06 1932-06 04.9 01.7 03.2
41 1904-04 1945-04 05.5 01.9 03.6
42 1890-06 1932-06 04.9 01.4 03.5
43 1889-06 1932-06 05.0 01.4 03.6
44 1888-06 1932-06 05.1 01.2 03.9
45 1887-06 1932-06 04.8 01.2 03.6
46 1886-06 1932-06 05.0 01.3 03.7
47 1885-06 1932-06 05.4 01.2 04.2
48 1901-06 1949-06 06.6 02.4 04.2
49 1883-06 1932-06 04.8 00.7 04.1
50 1882-06 1932-06 04.8 00.5 04.3

The Worst Ever Recorded Real Returns

Remarkably, 24 of the 50 holding periods encompassing the worst inflation-adjusted S&P 500 investment performance all end in 1932 and more specifically, in June of 1932, where 23 of the worst-case hypothetical investments end. Even more remarkably, the deflation of the time (negative inflation) actually improves the results for our hypothetical investor compared to the index' nominal performance!

The worst years for the negative effects of positive inflation involve investments ending in 1920 and 1921. This period marks the worst inflation officially recorded in U.S. history, which resulted from the early Federal Reserve's monetary policy in the years following World War I. We also see the negative effects of inflation corresponding to World War II, in the years between 1942 and 1945.

More recently, the high inflation of the early-to-mid 1970s amplified losses in the S&P 500 for investments made in the late 1960s, while the inflation of the late 1970s and early 1980s were enough to rob S&P 500 investors of positive gains from investments originally made in the mid-to-late 1960s.

All in all, the worst time to have ever invested in the S&P 500 for periods ranging from 1 to 50 years all involve investments that end in just six years!

Very Long Term Buy-and-Hold Nets Positive Worst Case Returns

Somewhere between an investment holding period of 20 and 21 years, the worst case inflation-adjusted S&P 500 rates of return turn positive. For an investment in the S&P 500 held for at least 35 years, the worst ever recorded rate of return is a positive 3.2%. And by 47 years, the annualized real rates of return recorded are no less than 4.2%!

Although we don't show holding periods between 51 and 130 years in our table or the corresponding graph, the worst-recorded inflation-adjusted annualized rates of return continues to gradually increase. By 130 years, the limit of the holding periods we considered, we found that the worst case real rate of return for an investment in the S&P 500 reaches 6.8%.

So, if you can reasonably expect to achieve a lifespan of 200 years, some prudent investing in your twenties will pretty much take care of your finances for even that long a life. For the rest of us, a worst case return of 3-4% annually after inflation might not be so bad!

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