Worst 10 year stretch ever for real S&P500 returns

Floyd Norris explains that the 10 years ending January 2009 have been the worst ever for annual real returns of the S&P500: "Over the 10 years through January, an investor holding the stocks in the S.& P.’s 500-stock index, and reinvesting the dividends, would have lost about 5.1 percent a year after adjusting for inflation, as is shown in the accompanying chart.

Until now, the worst 10-year period, by that measure, was the period that ended September 1974, with a compound annual decline of 4.3 percent.

That decline was strongly influenced by inflation. Ignoring inflation, stocks over that decade returned half a percent a year, not a very good showing but not a loss. But with inflation taking off, the real, inflation-adjusted return was negative.

For the current period, the total return was negative, at minus 2.6 percent a year, even before factoring in inflation."

Mr Norris adds "Many things influence stock prices, of course, and there is no guarantee that continued economic and financial woes will not drive the market down from here. But long-term investors may be able to take comfort from the fact that bad decades are often followed by 10-year periods that are better than the long-term average, which shows a gain of 6.2 percent a year." Looking at the chat above confirms this. In the past keeping stocks for 10 years after a negative 10 years streak usually provided positive real returns.