John Bogle [1] claims that the long term annualized return from the stock market has averaged about 6.8%. The lowest 50 year period was 5.8%, and highest was 7.9%. As far as 10 year periods, the lowest was 2.3%, and highest was 11.5%.
But, these percentages are after adjusting for inflation, maybe before inflation would be closer to your "7-13%".
It is a fact in the sense that the average stock market return over the course of the 20th century was ~10%. Of course, as every prospectus tells you, past performance is not a guarantee of future results, but what else are you going to use as a baseline?
Disclaimer: I have limited experience with anything finance, my profession is programming.
My understanding is that 10 years ago was a stock market crash(2008), and since then we've been in a historic bull run. My understanding is that it WILL crash again (obviously), we just don't know when. But the stock market has always been like this, cycling between bull/bear runs.
Wouldn't it make more sense to use a larger dataset that isn't just a bull run? Maybe the last 25 years or whatnot?
No. Over 30 or 50 years maybe but 10 years is too short especially considering we just had an incredible bull run.
I think many leaders in the space have said they expect lower returns in the coming years as well. Obviously this list is biased towards those who I personally believe in:
I've heard recently that we can expect lower returns in the 21st century, on the order of 5%, simply due to more efficient markets. It makes sense given that information spreads more rapidly today which in turn reduces informational advantages. I like the following poker analogy, even if it's not a perfect one.
The markets in the 60s, 70s and 80s were like poker tables with plenty of fish and few sharks. The sharks came out with bigger returns due to asymmetrical informational advantages which resulted in exploitation of mistakes. Today, the tables are full of sharks which means less mistakes and smaller returns.
Intuitively, this makes sense, since market gains are really just market valuation errors.
This doesnt make any sense. Short term trading gains/losses fit the poker table metaphor. The market as a whole is pretty insulated from those dynamics over longer than ~3month timescales.
You'll find charts for 5, 10, 20 and 30 year windows for the S&P 500. If you look at the 10 year one, you can see it has gone as high as almost 20%/yr for some 10 year period, and has given negative returns at least twice. That's without inflation.
If you adjust for inflation, then it's more like a peak of 17%, and multiple 10 year intervals that were negative.
Even a 30 year window (which I think is where the traditional 7% after inflation comes from), there were periods below 5%. The highest was a bit over 10% (inflation adjusted).
This is assuming a lumped sum in the initial period. If you're looking at putting money in every month/year and calculating the effective returns for those, you'll find those plots as well.
No, sort of. 13% is way off, but 7% is about the inflation-adjusted average yearly real return of the US stock market over the last 140 years. But any particular 10-year period can be up or down. You only get some amount of safety if you're investing over 40+ years.
My understanding is that the consensus number used for eg retirement planning was 6% real (after inflation) annual returns for decades, but today (“secular stagnation” etc) I’d probably conservatively calculate with 5% or even 4%.
John Bogle [1] claims that the long term annualized return from the stock market has averaged about 6.8%. The lowest 50 year period was 5.8%, and highest was 7.9%. As far as 10 year periods, the lowest was 2.3%, and highest was 11.5%.
But, these percentages are after adjusting for inflation, maybe before inflation would be closer to your "7-13%".
[1] Common sense on mutual funds, p16