Tuesday, April 16, 2019

Published 5:45 PM by with 0 comment

Real S&P 500 Returns


I took a crack at visualizing actual returns for long-term, steady investments in the S&P 500.

Results

The plot below is the real yields. I didn't see an easy way to update the color bar, so read the '10' and '-10' as '>=10' and '<=-10'. Those are all percentages. To read it, simply pick a row for your starting year, and read-left to right to see how the investment performed. For example, if you start at 1928, then 1928 is 1 year, 1929 is 2 years, etc.

If you start at 1966 and check 1995 and see a value of 4.6%, that means that the real yield if you invested steadily for 30 years starting in 1996 is 4.6%. Hovering lets you see more detailed info.

Read below the plot for methodology.



Methodology

I got yields from here and inflation from here. To calculate the values in the plot, I used the following algorithm:
  1. start at 1928 with $100
  2. multiply by 1928's yield
  3. add an inflation-adjusted $100
  4. calculate the rate that yields that future value with number of years since start and the annual investment
  5. multiply by 1929's yield
  6. add an inflation-adjusted $100
  7. calculate the rate that yields that future value with number of years since start and the annual investment
  8. repeat 4-7 until you hit 2018
  9. start at 1929 with $100
  10. repeat 2-8
  11. repeat for all starting years up through 2018
The value in the plot is just the rates from steps like #4. Those values are the approximate annual yield of the investment factoring in dollar-cost averaging, inflation, and dividends.

If you want to read more on the math for this sort of thing, check out these:

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