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D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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Good is more than bad

Posted by Muthu on September 22, 2015

Joshua Brown has shared this excellent chart created by Virginia retirement system.

I want share some observations based on this chart.

They have studied US stocks (S&P 500 index) for a period from 1926 to 2014, 89 years.

Out of 89 years, there was a positive average return of 21.47% for 65 years, 73% of the time.

The balance 24 years, 27% of the time, there was a negative average return of -14.29%.

65 positive years are distributed as follows:

Return of 0% to 10%: 14 years

10% to 20%: 18 years

20% to 30%: 15 years

30% to 40%: 13 years

40% to 60%: 5 years

24 negative years are distributed as follows:

Return of -10% to 0%: 13 years

-20% to -10%: 5 years

-30% to -20%: 3 years

-40% to -30%: 2 years

-60% to -40%: 1 year

Out of 89 years, there has been loss of above 20% only in 6 years. Except for these 6 years (where the loss ranged above 20% to 60%); the other negative years were emotionally more manageable. Many, fearing these 6 years, let go the opportunity available in 65 years.

Please note that in stock markets, good years are always more than bad years.

As you are aware, from 1979-80 to 20014-15; for the last 36 financial years; Sensex had 25 positive years and only 11 negative years. In other words, 70% of the time Sensex has provided positive returns.

As long as earnings continue to grow, declines are temporary and upward trajectory is permanent.

Take next 10 years or 20 years; markets would be much higher than where it is now.

Both in real and nominal terms, markets generally tend to keep moving upwards over long run with lot of volatility in between. If you can be comfortable with volatility, equities would confer huge wealth for being patient and staying the course.

4 Responses to “Good is more than bad”

  1. Nice analysis and a kind of reassurance that good times last longer than bad times. Cheer Up!!!

  2. Nikhil keny said

    Thank you SIR for always reminding us to think for a long term.

  3. MPSingh said

    It’s knowdgeable experience going through your posts.

  4. […] Good is more than bad […]

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