The Facts of The Last 30 Years

You’re entitled to your own opinion, but you’re not entitled to your own facts: one of Dallas’s favourite sayings of all time.

We recently did a podcast about the shocking risk of having your money in a term deposit for 30 years. Today we’re going to look at those same 30 years – that is, if a person hadn’t put their money in a term deposit but invested it instead, how different would the outcome be?
 
As an example, if they invested in the largest 500 companies in the U.S. (and we’re not telling you to do that, we would encourage more diversity – but we’ve used the data from the U.S. market for the sake of simplicity). On average, the rate of return in the last 30 years was 10.43% per annum, while the cost of goods and services went up 2.27% on average per annum. And while these figures reflect the U.S. market, the Australian market had very similar results.
 
This means that if you had invested for 30 years, your true rate of return would be around 7% (taking that inflation into account).
 
Why is this significant?
 
So often, investing in the share market is portrayed negatively. Since we’ve been in this business (2001), there have been some external factors affecting investors. There have been terrorist attacks, wars, pandemics, a Global Financial Crisis. But when you look at the market returns over a 30-year period, as we have above, one thing is strikingly clear: no matter what happens in the short-term; historically, you will still get a positive return. Despite all of those things listed above, there was still a 10% positive return (on average per annum) over those 30 years in the U.S.
 
Now, those people who panicked and withdrew their money during the GFC, or any of those events, wouldn’t have seen that kind of return on their money. Even during the COVID-19 pandemic, by the end of 2020, the sharemarket was up 6%.
 
Our 30-year example was from September 1990 to September 2020. But you can do your own research. In fact, there is a brilliant website called political calculations (link below) that we highly recommend as ‘homework’ for anyone who is interested. You can type in any period of time and look at the figures on the sharemarket including return, inflation and dividend payout for the S&P 500 (the largest 500 publicly-traded companies in the U.S.). The dates go all the way back to 1871. It’s incredibly informative, and really cool (well, we think so, anyway)!
 
Check it out here: https://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.YAzBXZMzYvc
 
Put in your preferred range of dates, and then look at the section that says ‘index rate of return with full dividend reinvestment’ – this is the total rate of return (the growth and dividends together).
Here’s an additional challenge: try and choose a 30-year period where you think the situation was really bad, and see what happened in the market.
 
What’s our take away message behind all of this?
Well, these figures demonstrate the importance of having a long-term view when it comes to investing.
 
Please get in touch if there are any topics you’d like us to discuss in our upcoming podcasts – we love hearing from our listeners and answering their questions!
 
podcast@mo50.com.au