The Power of Long-Term Investing: Examining 10, 20, and 30-Year Rolling Returns
5min video
Here's a dose of optimism for all you long-term investors out there! 🌞💪 Despite economic downturns, wars, and pandemics, historical data shows that the rewards of long-term investing can be substantial. Take a look at rolling returns and get motivated to stay the course.
Video transcript:
Just how rewarding has it been for the long-term investor?
Right now, there is so much focus on the short term in the stock market that a dose of optimism and perspective might do us some good. So today, we will talk specifically about rolling returns and how rewarding these can potentially be the more time you have.
These are a series of overlapping periods, and then you calculate the investment return for each period. For example, if we are calculating rolling 10-year returns, we would take the first ten years of data and calculate the investment return for that period. Then we would shift the window forward by one year, calculate the return for the next 10-year period, and so on. So there are just as many ten-year periods as one-year periods. We aren’t just cherry-picking the good ones. This smooths out short-term fluctuations and helps us understand the potential rewards of being a long-term investor, but it considers an element of timing risk.
So before I bombard you with a bunch of data, I want to give credit where credit is due, Ben Carlson from the WealthofCommonSense blog put together many of these numbers, and I’ve adapted them for this video and my clients.
Over the last century, we've seen plenty of volatility in returns. So I will break down 10, 20, and 30-year rolling returns.
Let’s talk about ten years first: The best 10-year period was 21.4% per year ending in 1959, with a total return of roughly 600%. On the flip side, the worst 10-year period showed a loss of almost 5% per year, ending in 1939, at the bottom of the great depression, where you lost about -40% of your initial investment over those ten years, point to point.
So what’s interesting is if we stretch this out to a 20-year rolling period, we don’t see a single down. The best 20-year return compounded at over 18% per year from the early-1980s through spring 2000. The worst 20-year return was a gain of less than 2%, so you still made money, ending in 1949, because you had to endure the Great Depression and World War II, but you still made money over that time. Also, as an additional fun fact, in over 90% of the 20 years, the annual returns were 7% or higher, and again, there was never a negative period.
Now, for my favorite chart – rolling 30-year annual returns. The lowest annual return over any 30 years going back to 1926 was 7.8% in September 1929 at the peak of the Roaring 20s boom. Now you. You would have lost more than 80% of your investment in the ensuing crash, but you still made more than 850% in total over 30 years. So to say it another way, if you had the worst timing of anyone in American history and invested $100,000 just before the great depression, your investment would’ve shrunk to $20,000, but if you rode things out and didn’t sell, you still had $850,000 30 years later. Now this was over a period where a third of the world was unemployed, and then WW2 happened, and half of Europe was leveled. It makes sense that would be the worst 30-year period.
On the other hand, the best 30-year return was 14.8% in the 30 years ending in 1968, which makes sense because 1938 would’ve been near the bottom of the great depression. While the difference between 7.8% and 14.8% per year doesn’t sound like a big difference, over the long run, it is. Instead of your 100k growing to 850k in our worst period, if you had the best timing of anyone in history, this would’ve grown to over 6.2mm.
Despite adverse events like the Asian currency crisis, the dot-com crash, 9/11, the Great Financial Crisis, the most significant global pandemic since 1918, and more, recent returns have been strong. The most recent 10-year annual gain through January 2023 was 12.7%, and the previous 20 and 30-year periods were up 10.3% and 9.8% per year, respectively.
Of course, we can't predict the future, but looking at these numbers, it's hard not to be optimistic, especially if you are a long-term investor. And the reality is, whether you are 30 or 60, you are still a long-term investor. Despite bad things happening, human progress continues to march on. I wouldn’t bet against it. As always, stay on point!
https://awealthofcommonsense.com/2023/02/deconstructing-10-20-30-year-stock-market-returns/
