Playing around with numbers gives you some interesting results in any field. Here are a few examples from finance.
For those of you over 60, it may feel like the last 45 years have been in the best in stock-market history. After all, there were huge bull markets in the 1980s, the 1990s, not to mention the last 16 years. But of the 53 rolling 45-year periods since 1928, the last 45 years ranks only No. 14, with an annualized total return of 11.99% for the S&P 500.
It’s easy to forget that the market dropped for three straight years in 2000-02, following the dot-com bust. That was the first triple dip since 1929-32. The S&P 500 also plunged 37% in 2008 amid the Great Financial Crisis and tumbled 18% in 2022. These stumbles obviously put a damper on the 45-year return.
The No. 1 period for that length was 1953–1998, with a return of 13.08%. That era includes the booming post-World War II economy of the 1950s and 1960s. The 1960s growth was fueled largely by hefty tax cuts and government spending under President Lyndon Johnson. The 1990s also saw economic prosperity, along with corporate pursuit of efficiency, technology and overseas markets.
Don’t give up on greenback
There has been a lot of talk about the dollar’s demise in recent month. But the euro now trades $1.1645, barely changed from $1.1686 at its December 1999 debut. There has been plenty of movement up and down since then, with a high of $1.58 in 2008 and a low of $0.85 in 2000.
Remember that currency rates are generally driven by short-term interest-rate moves and short-term economic performance. So the fluctuation makes sense. Developed market currencies rarely move in the same direction for years and years.
Stocks versus bonds
You’re surely aware that stock returns handily beat bond returns over the long term. But there are exceptions. The 30-year Treasury yield hit a record high of 15.21% in October 1981, as Federal Reserve Chairman Paul Volcker ratcheted interest rates higher to tame raging inflation.
If you bought 30-year Treasuries then and held them until maturity, you would have smashed the S&P 500 index. It posted an annualized gain, excluding dividends, of just 8.06%. Don’t count on that phenomenon happening again, but you never know.
Commodities and inflation
Financial advisers frequently tout the importance of commodities as a diversifier for your investment portfolio. But you shouldn’t expect much in the way of returns. Indeed, various commodities indices have generated inflation-adjusted returns of about zero for the last 200 years. So what you’re really getting out of investing in commodities as an asset class is a hedge against inflation.
Homes versus stocks
Young people who have seen explosive increases in home prices during recent years (18% in 2021 and 14% in 2022, for example) may be tempted to think that investment returns on their homes are competitive with stocks. That’s not the case. Home prices climbed an annualized 4.5% over the past 70 years, compared to a total annualized return of 11.3% for the S&P 500. So it’s generally better to think of a home as a place to live rather than as a profit center.
Perhaps this will inspire you to discover fun financial facts of your own. We’d love to see them: You can email dan.weil@quantfury.com. We’ll print some of the most interesting submissions.
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