2000s is worse than the 1970s in terms of real returns

by FogDucker

CPI in January 1970 was 37.9; January 1980 was 78. So the price level essentially doubled. (78/37.9).1 = 1.074 so inflation averaged about 7.4% a year throughout the 70s.

The worst years were 1974 (~12%) and 1979 (~13%). Compared to those two, other years were relatively tame. Stocks did shitty in 1974 but awesome in 1979.

In terms of “the stock market” for that time period the lowest-hanging-fruit proxy I could find quickly was Vanguard’s “Windsor” large cap mutual fund. It returned a non-inflation-adjusted average of 11.6%, so real returns were roughly 11.6 – 7.4 = 4.2% per year.

Not sure I know how to make a table correctly, but here’s an annual breakdown of VWNDX (that Windsor fund):

Year Nominal Return Inflation Real Return
1970 7.5% 5.6% 1.9%
1971 7.4% 3.3% 4.1%
1972 10.2% 3.4% 6.8%
1973 -25.0% 8.9% -34.0%
1974 -16.8% 12.1% -28.9%
1975 54.5% 7.1% 47.4%
1976 46.4% 5.0% 41.4%
1977 1.0% 6.7% -5.7%
1978 8.8% 9.0% -0.2%
1979 22.6% 13.3% 9.3%

 

I didn’t invest through the 70s but I did through the 2000s (WTF are we calling them? The “aughts” or something?) Anyway, that decade was super shitty, not for inflation but for stock market returns. It turns out that decade was worse than the 1970s in terms of real returns. I stuck with VWNDX in the following for direct comparison with one addition: everyone’s favorite S&P500 ETF, SPY. SPY actually did even worse than the Windsor fund.

Year Nominal Return (SPY) Nominal Return Inflation Real Return
2000 -9.7% 15.9% 3.4% 12.0%
2001 -11.8% 5.7% 1.6% 4.1%
2002 -21.6% -22.3% 2.5% -24.1%
2003 28.2% 37.0% 2.0% 34.3%
2004 10.7% 13.4% 3.3% 9.7%
2005 4.8% 5.0% 3.3% 1.6%
2006 15.8% 19.4% 2.5% 16.4%
2007 5.1% -3.3% 4.1% -7.1%
2008 -36.8% -41.1% 0.0% -41.1%
2009 26.4% 34.7% 2.8% 31.0%

Over this decade, CAGRs were 1.1%, 6.4%, 2.6%, 3.7% (for SPY, VWNDX, CPI, Real Return on VWNDX)

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