Updating Some Performance Charts & What I’ve Been Reading Lately

A reader asked this week if I would update an old performance chart of the S&P 500 I used a few years ago.

Here are the S&P 500 calendar year returns shown as a scatter plot:

The red line is the average so you can see how wide the fluctuations are from year to year. It’s also interesting to note how few annual returns are anywhere near the long-term average. These inconsistencies are one of the reasons the stock market befuddles so many people.

While updating this graph I decided to see how this format would look using different asset classes so I could compare stocks, bonds and cash.

I used real returns to account for the fact that nominal interest rates can make the bond and cash returns look higher than they appeared in the past. Here are the cash returns using one-month t-bills as a proxy:

It may be surprising to some to see so many slightly negative years but that’s what happens when there’s above average inflation, even when rates were in double-digit territory in the late-1970s and early-1980s.

And here are after-inflation bond returns using 5-year treasuries:

Even bonds give you a somewhat bumpy ride around the long-term averages.

Now for stocks on a real basis:

These graphs provide a nice visual of the risk-reward relationship that exists in these various asset classes.  Now here are all three next to each other to gain a cleaner look at them side-by-side:

At first glance, most investors probably wonder why they would ever accept the insanity of the stock chart when they could take the relative calm of the bond or cash return stream. These fluctuations are explained by the fact that stocks have returned a little more than 7% above the rate of inflation while bonds and cash have real returns of 2.2% and 0.5%, respectively.

If you want more predictability in the short-term, you have to learn to live with lower long-term returns. And if you want higher long-term expected returns, you have to learn to live with more volatility in the short-term.

This stuff is pretty basic but investors often need a reminder to understand the possibilities based on their asset allocation.


Now here’s what I’ve been reading lately:


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.