History of Investing in the Market since 1900 until Today

History of Investing in the Market since 1900 until Today

If you invested in the US stock market from 1900 through today, your average annual rate of return would be approximately 9.466% (with dividends reinvested). Adjusted for inflation, the real average annual return would be around 7.031%. Don’t forget the tax you have to pay.

Historical Stock Market Performance

The US market performance is typically measured using data that combines various sources for periods before the S&P 500 index was introduced in its current form. Data extending back to the late 19th century utilizes sources like the Cowles Commission and Robert Shiller’s data.

• Total Return: The 9.466% figure assumes that all dividends were reinvested, which accounts for a significant portion of the total gain over such a long period.
• Inflation-Adjusted Return: After accounting for inflation, the real purchasing power increase of your investment would equate to a 7.031% average annual return.
• Volatility: The average return smooths out significant year-to-year volatility, including major downturns like the Great Depression and the 2008 Great Recession, and major booms. The market historically trended upward over the long term, with positive returns in roughly 70% of all years.

Contextualizing the Data

The S&P 500 index itself was only expanded to 500 stocks in 1957; prior data uses composite indices. When looking at the more recent, but still long-term, period since 1928 (the inception of the S&P 90 index), the average annual return is slightly higher at around 10.11% (6.84% adjusted for inflation).

The key takeaway for an investor since 1900 is that a patient, buy-and-hold strategy, especially one involving reinvesting dividends, would have generated substantial wealth despite numerous economic crises and market crashes.