9 Uncomfortable Facts About the U.S. Stock Market

Things feel pretty comfortable in the stock market right now.

Pretty much anything you put your money into has worked spectacularly well since stocks bottomed this past March.

The crash last year shows how risky investing in stocks can be but it was over in the blink of an eye. There have been plenty of other instances where investors in U.S. stocks have been much more uncomfortable for longer periods of time.

Here are 9 historical facts about the U.S. stock market that can serve as a reminder:

1. The stock market was underwater from 1929-1954. There wasn’t a single new all-time high from the peak in September 1929 through September 1954.

This was on the price level only, but even if you were to include dividends it would have taken nearly 14 years to breakeven following the 80%+ crash during the Great Depression.

2. The total return from early-March 1997 through early-March 2009 was 5%. It’s a sad, but true fact that the 2008 crash incinerated a dozen year’s worth of gains.

March 2009 was the bottom of an all-time crash but this was still a lost decade and then some for investors in the U.S. stock market.

3. Government bonds outperformed the stock market for 40 years at one point. From March of 1969 through February of 2009, long-term government bonds outperformed U.S. stocks.

To be fair, this was also near the bottom of one of the worst bear markets in history. And long-term bonds were ahead by a razor-thin margin — 8.63% to 8.57% for annual returns.

This environment also included the highest interest rates in our country’s history. But the point remains that government bonds beat stocks over a four-decade span, which could cause many an investor to question the idea of a risk premium in stocks over bonds.

4. From 1969-1981, the stock market underperformed the rate of inflation by more than 56%. The total return for the S&P 500 from 1969-1981 was 105%. Not bad, right?

Well, that depends on how you think about returns. Prices rose more than 160% in that same time, meaning the stock market lost roughly 2% annually on a real basis.

5. Gold destroyed the stock market in both the 1970s and early 2000s. Because of that nasty inflation in the 1970s, gold crushed the stock market, rising more than 1,300% versus a 78% gain for the S&P 500.

And when the S&P 500 fell more than 9% in total in the lost decade from 2000-2009, gold was up more than 280%.

6. In 30 out of the past 93 years, keeping your money in a savings account would have beat the returns of the stock market. Cash has outperformed the U.S. stock market roughly one-third of all years since 1928.

It’s also true that cash has never experienced a down year on a nominal basis, while the stock market has fallen a tad more than 1 out of every 4 years, on average.

7. Over the course of the 1970s and 1980s the Japanese stock market outperformed the U.S. stock market by more than six-fold. In the 20 years ended 1989, the S&P 500 was up 11.6% per year.

That’s a pretty good return over two decades.

Unfortunately, the MSCI Japan Index saw returns of nearly 23% per year over those two decades.

From 1970-1989, U.S. investors would have earned total returns of more than 6,000% in the Japanese stock market versus a return of 790% in U.S. stocks.

8. The U.S. stock market has experienced 6 crashes of 40% or worse since 1928. In that time, the market has fallen by more than 30% a dozen times and more than 20% twenty-one times.

This means that, on average, the stock market has been down 30% or worse 1 out of every 10 years and down 20% a little more than 1 out of every 5 years.

9. The U.S. stock market has fallen by 10% or worse in a single year 11 times since 1928. The worst annual return for U.S. stocks was a loss of more than 43% in 1932.

The average loss in a double-digit down calendar year for the S&P 500 is nearly 23%. And in the 25 down years in U.S. stocks from 1928-2020, the average loss was more than 13% in a year.

Yet despite all of these instances of awful returns, underperformance, losses and risk, the U.S. stock market has been up close to 10% per year over the past 100 years or so.

In fact, the U.S. stock market has never experienced losses over any rolling 20 year window.

It’s likely true that the reason returns have been so high over the long-run for U.S. stocks is because of the fact that there is so much risk involved at times.

I don’t know why and I don’t know when but eventually investors are going to become uncomfortable once again.

Further Reading:
Buying When Stocks Are Down Big