What I love is that it gives you a quick history of stock and bond returns. I find that looking back on history has made me more confident in what I expect in the future, especially when the market is down. Additionally, having a better understanding of historical returns may help you make investment allocation decisions, which may result in higher expected returns.
OK, this refers to the link to the index matrix. When you open it, you will see the picture below.
What stands out when you look at the chart? There are lots of green and red. This is a chart of the S&P 500, the leading U.S. stock market index, showing annual returns before inflation from 1927 to 2024. Green represents a positive year and a red year, a negative year. The deeper the shadow, the higher or lower the reward.
The numbers along the diagonal line represent the year of entry into the market. Some years are negative (red), most are positive (green). If you look at the red square diagonally and look straight north until the square turns green, it’s been years before you get a positive annual return. Think of the diagonal as the barbed wire for investment. Once you overcome it, your original investment is in a green ranch with positive returns.
Remind the market reality
Once the page opens, move your cursor to the 2000 Red Square. The return rate for that year was -11.7%. Now, slide your profile northward to 2010. The average annual rate of return for this 10-year period was 1.1%. This represents the 10-year unrestrained growth of the S&P 500.
Use the drop-down menu to view Canadian market earnings. During the same period between 2000 and 2010, the average yield was 11.6%. Between 2000 and 2010, small-value stocks in the United States (small-cap stocks with value skew) returned 11.9%. This is a great example of how diversification can reduce risks.
As a Moneysense reader, you may have read that over time, small stocks have higher returns than large companies. This is evident in the chart above, with the darker shade of green on the S&P 500 standard book. However, since 2003, the S&P 500 has outperformed U.S. value. Will small values return to their long-term returns?
