Calculating S&P 500 rate of return?

Ed_Flecko

Ed_Flecko

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I found a website titled, "Historical Returns on Stocks, Bonds and Bills: 1928-2022" - https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

When you download the Excel spreadsheet (https://www.stern.nyu.edu/~adamodar/pc/datasets/histretSP.xls), you can see Geometric Average Historical Return of the S&P 500 (between 1928-2022) is 9.64%.

I'm trying to understand if this rate of return 9.64% has just one, annual compounding period that's baked into these numbers or if it's compounded monthly? I'm creating a simple, Excel spreadsheet and I'm using the "FV (Future Value - https://bit.ly/3nT49ef ) Function" and I'm trying to replicate this type of calculation.

Do you think these numbers are using Annual or Monthly compounding?

Thank you,
Ed
 
It's annual, assuming you may know and I am just misunderstanding your OP, but excel has a function for the 9.64% (geomean).

BTW, great dataset (y), I have used it many times.
 
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99Saturn said:
It's annual, assuming you may know and I am just misunderstanding your OP, but excel has a function for the 9.64% (geomean).

BTW, great dataset (y), I have used it many times.
Click to expand...
It does have that function, but you have to be careful. Negative cash flow values will make it throw an error...every time.

:)

Ed
 
Ed_Flecko said:
It does have that function, but you have to be careful. Negative cash flow values will make it throw an error...every time.

:)

Ed
Click to expand...
Add a column, add 1 to the yearly return and place it in that column. Then run geomean on the new column and subtract 1.

Edit - screenshots below.

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One of advantages of the S&P 500 is if you invest in an index fund then it's typically a low fee index fund.

And asking your financial advisor why the money he has invested for you is not beating the S&P 500 even with the big fees you are paying him.
 
Donald said:
One of advantages of the S&P 500 is if you invest in an index fund then it's typically a low fee index fund.

And asking your financial advisor why the money he has invested for you is not beating the S&P 500 even with the big fees you are paying him.
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There is no guarantee index fund is low fee, although it should. I have seen my general manager grill an advisor from the bank about why their S&P500 is like 1.0% fee and he has no answer.

The reason most financial advisor couldn't beat S&P500 is because nobody can predict winner again and again, and in the end everything is priced according to its risk, so the only thing an investor can control is the fee, and to reduce fee you have to reduce the amount of work the fund manager has to do, hence just pick something others have published, whether it is S&P500, Russell 3000, or any other international fund.
 
If you are a Boglehead then you know that comparing low fees vs high fees over 20 or more years can start to become huge. And there can be taxes involved if your investing involves frequent trades.

I have most of my investment in Vanguard S&P 500 index and a small amount in Motley Fool recommend stocks.
 
PandaBear said:
There is no guarantee index fund is low fee, although it should. I have seen my general manager grill an advisor from the bank about why their S&P500 is like 1.0% fee and he has no answer.
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it just shows how financially naive a large percentage of American's are.
the thought that someone would go to a bank to purchase any investment vehicle other than a CD.

The internet and low cost brokers are the most useful tool ever invented for the small time investor and the best advice can be obtained for free..
 
PandaBear said:
There is no guarantee index fund is low fee, although it should. I have seen my general manager grill an advisor from the bank about why their S&P500 is like 1.0% fee and he has no answer.
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In an employer sponsored plan of some type (ie 401K, HSA) or was there an advisor for some reason in talking to people about personal self directed investments?
 
PandaBear said:
There is no guarantee index fund is low fee, although it should. I have seen my general manager grill an advisor from the bank about why their S&P500 is like 1.0% fee and he has no answer.

The reason most financial advisor couldn't beat S&P500 is because nobody can predict winner again and again, and in the end everything is priced according to its risk, so the only thing an investor can control is the fee, and to reduce fee you have to reduce the amount of work the fund manager has to do, hence just pick something others have published, whether it is S&P500, Russell 3000, or any other international fund.
Click to expand...
If you want low fees just go with Vanguard. Huge huge company that is not going to do a Bernie Madoff with your money. No cost stock trades. Free financial advice.
 
99Saturn said:
It's a shame that HR (whoever within HR) is responsible for picking a 401K administrator goes with that type of a deal. I've seen some truly silly fee structures for 401Ks, ESPPs, HSAs.
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yeah, that is the nature of the financial industry.. it is also worth saying the HR type may not have a clue either.

I have a real defined benefits pension retirement, but I also have an IRA and my employer also had an optional 457b plan available to us.

The 457b plan was administered by Nationwide ( they aren't on your side).
I used the 457 plan as a tax dodge, was in it for about 20 years...

In the early days it had a slew of investment choices in mutual funds from a variety of any big name you can think of that offer mutual funds. aka Fidelity, Ben Franklin Vanguard Putnam etc...

over the years Nationwide saw the handwriting on the wall, in the sense they were leaving money on the table
so Nationwide started creating their own mutual funds and slowly limiting the amount of funds available for the employee investor to use outside brokerage mutual funds and started creating their own Nationwide labelled versions, where Nationwide handled all the money..

Seems by the time I retired about the only investments in the 457 plan available were Nationwide's own versions of mutual funds.
Which I didn't think were better choices than the industry offerings available but it is what it is.

You as the investor have little choice of what the 401 or 457 plan offers and if the plan administrator decides they want to milk the system with funds that provide the administrator with a higher profit level there isn't a whole lot the employee investor can do about it..
 
PandaBear said:
There is no guarantee index fund is low fee, although it should. I have seen my general manager grill an advisor from the bank about why their S&P500 is like 1.0% fee and he has no answer.

The reason most financial advisor couldn't beat S&P500 is because nobody can predict winner again and again, and in the end everything is priced according to its risk, so the only thing an investor can control is the fee, and to reduce fee you have to reduce the amount of work the fund manager has to do, hence just pick something others have published, whether it is S&P500, Russell 3000, or any other international fund.
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People love to complicate things! Basic, good, sound investing, as you suggest, is so simple now. If all someone did is buy VTI or ITOT or VOO or IVV or any of their equivalent mutual funds that cost 0.03% over the course of their investing career they'd be ahead of most and certainly not behind many.

If anyone is paying 1.0% you're getting hosed. If you think you're not because "you're up" it's just a matter of time before you're not. There is more data generated by the market than just about any other human endeavor and because of this it has been dissected and the numbers crunched every way possible and it all, time after time, year after year, decade after decade, says the same thing - over a sufficiently long enough period of time it is a fool's errand to try and "beat" the market.

In practical terms, you are playing a game with the other 8 billion people on the planet - you can try and beat them or you can play with them. Statistically, the outcome of this choice is incontrovertibly in favor of playing with the masses and not against them.

Enter someone saying but, but, but Warren Buffett - no one here is Warren Buffet.
 
99Saturn said:
It's a shame that HR (whoever within HR) is responsible for picking a 401K administrator goes with that type of a deal. I've seen some truly silly fee structures for 401Ks, ESPPs, HSAs.
Click to expand...

Yep. I agree with you.

My 401K through Fidelity has S&P500 fund, mid cap and small cap at 0.01% fee.
Maybe the bigger the company and net balance of 150K+ employees, the lower the fees ?
 
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PWMDMD said:
In practical terms, you are playing a game with the other 8 billion people on the planet - you can try and beat them or you can play with them. Statistically, the outcome of this choice is incontrovertibly in favor of playing with the masses and not against them.

Enter someone saying but, but, but Warren Buffett - no one here is Warren Buffet.
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its worth saying Warren Buffet said " the average person would outperform most actively managed traders if they invested 90% of their money in the SP500 and the other 10% in a bond fund". https://www.investopedia.com/articles/investing/030916/buffetts-bet-hedge-funds-year-eight-brka-brkb.asp
 
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