CWA Insights

Patience Pays: Analyzing 94 Years of S&P 500 Returns

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In finance, historical data helps us understand market trends. Our study of 94 5-year periods on the S&P 500 shows that most had positive returns, with only six negative ones. Returns typically fell between 15-20%, suggesting long-term strategies work well. Let’s use this knowledge to navigate markets wisely, with patience and caution.

  Key Takeaways
  1.  Among the 94 5-year rolling periods on the S&P 5001, only 6 exhibited negative returns.
  2.  Within this dataset, the most frequent return occurrence fell between 15-20%.
  3.  While patience and long-term strategies are important, individual outcomes may vary. Past performance is not indicative of future performance

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The tide of markets shifted northward last fall under the possibility of the Fed cutting rates. Since then, they have sagged and surged into all-time high territory. We find ourselves nearly halfway through the year, and these cuts are yet to be seen. As such, we have been asked numerous times if now is the moment when we need to brace for impact and lower risk. There have been a lot of articles that say the soft landing already occurred, didn’t occur, won’t, or may yet occur. As usual, the rhetoric of the investing industry can be confusing. Amid so much opinion about the future, we just wanted to look at the facts of the past. Trying to gauge a shift in risk tolerance should be a confluence of personal needs for change and market influences. Our goal today is to observe the markets and try to quantify the historical odds of success. Is time in the market really better than timing the market? Before we get to the data, I have to make two disclosures. The first is that past performance is just that, past. It may or may not be a good way of concluding the path forward.   Second, we are using a very long set of data that may show slight deviations from what is reported here depending on where you look. Your family outcome is largely based on the sequence of actual returns you live through. Those years may be better or worse than the averages presented here. That was the point of arranging the data as we did so that shorter data blocks might smooth out the reporting.

5-Year Rolling Outcomes 

We used calendar returns on the S&P 500 index going back to 1926. Our research team seems to come across many articles that describe market history in many 10-year periods. That sparked many questions for us. What are the 10-year periods? Is it just on the even decade or has anyone gone finer or observed the data in more nuance? 10 years is a long time in the markets.  It seems like nearly anything can change in a decade. That caused us to look at rolling 5-year periods. There are 94 whole rolling 5-year periods since 1926. When we say rolling that means we take a starting year and use it plus the next sequential 4 years over and over until the present time.  We did this for every rolling period year between 1926 and now. We chose to use 5% increments to measure the frequency of outcomes.  We wanted to know how often and to what degree 5-year periods were positive or negative. We will list the data we accumulated, and then give some thoughts about it. 

The data period covered 1926-2023

Index: S&P 500 
Number of Observed 5-Year Rolling Periods:
94

 S&P 500 5-Year Rolling     Return OutcomesNumber of 5-Year Rolling Occurrences Percentage of Total Observed 5-Year Rolling Periods
  Less than Zero66.38%
  Zero to 5%1414.89%
  5-10%

15

15.96%
  10-15%2021.28%
  15-20%2930.85%
  20-25%99.57%
  Over 25%11.06%

S&P 500 Return Outcomes for 5-Year Rolling Periods from 1926 - 2023

Data Source: Capital Wealth Advisors

As we look at the data in this way, the odds seem to be in favor of above-zero returns. 88 of the 94 observed periods had a positive outcome. That is 93% of the total sample. That means the extreme majority of the market outcomes exhibit real growth. Only 6 outcomes observed were negative. Of those outcomes, 3 of the 6 negative return periods are explained by the great depression. Pleasantly, the most common occurrence was a return of 15-20% on the 5-year rolling average.  This occurred in just over 30% of outcomes.  Just over 1 in 5 outcomes were between 10 and 15%.  That means the data shows that over 50% of observed outcomes come from a combination of the 10-20% data set.  That is fantastic news for long-sighted patient investors. 
What do we think you should make of all this?  To start, the markets have been far better than they have been worse.  That isn’t to say that down years do not hurt, or that investment selection cannot improve or damage returns.  I think that a historical 88 of 94 positive observed outcomes is likely far better odds than most casino games or state lotteries.  Taking a longer-sighted patient approach really seems to work.  Trying to chase this year’s hot money is a very tricky thing to do.  These last 4 years especially. Thankfully with some patience, in all but a scant few outcomes, the data observed here would mean real growth for investors.  

We also think that subtle changes work better than knee-jerk reactions. The data shows that patience is a key driver in returns.  The ability to show it is very important to the investing process. 5-year periods aren’t such a long time in market terms, but even those require patience. There are many studies that describe the behavior of investors.  Frequently, the patient investor comes out ahead over the long run even if in the short run they seem deficient. Overreaction in accounts can commonly lead to being on the wrong side of the market.  At CWA, we hope our discipline and trading rubric have been able to help smooth volatility to some degree on behalf of our investors.  We hope that leads to confidence and a lower desire to react rather than to respond to market conditions.  

Here are a few other notable mentions to consider.  The markets have only been negative for 2 years or more on 4 occasions in the last 94 years. 4 years around the Great Depression, 3 years around World War II, 2 years in the oil embargo 1973-1974, and 3 years in the DotCom bubble.  The markets have never had a correction that wasn’t followed in the next several years by higher highs than were previously reached before the downturn.  

Conclusion

Our hope in presenting this data this way is to encourage you that with a little time and patience, things have a way of working out. That is by no means a guarantee statement, but we do enjoy the luxury of now quite a long road to look back over. Having a reasonable handle on your risk and income situation and the patience to account for market uncertainty seems to be a very recipe for a lower-stress investing experience.  

Before we close, we do need to disclose that one key weakness in this data is scope. This is raw data that has not been adjusted for taxes, or distributions. If you needed income or had a required distribution from a qualified account, these reductions would certainly impact the overall picture.  In these cases, active management and proper financial planning really shine. What are your family goals? How sensitive to market fluctuations are you?  How much income does your family portfolio have to produce? These questions can be both emotionally and financially driven.  Both concerns are relevant and important. It is from these deeply personal facts and circumstances that asset allocation and family planning root. If you feel unsure about these markets or your risk exposure, we would love to begin a financial planning dialogue with you.  

 

Source
1 S&P 500 Total Returns. (2024, May 19). Slickcharts. https://www.slickcharts.com/sp500/returns 

 
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CWA Asset Management Group, LLC (“CWA”) is an SEC-registered investment adviser, doing business as Capital Wealth Advisors (FL, LA & NC) and as blueharbor wealth advisors (NC). Registration does not imply any level of skill or training. Gyroscope Capital Management Group, LLC is an affiliated registered investment adviser who manages options strategies which are recommended, if suitable, to certain CWA clients, for an additional fee. This material is for informational purposes only, as of the date indicated, is not complete, and is subject to change. Additional information is available upon request. Any opinions expressed herein represent current opinions as of the date of publication only and may change based on market or other conditions. This material may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual results will not be materially different from those described here. Certain information herein has been provided by and/or is based on third-party sources and, although believed to be reliable, has not been independently verified, and CWA is not responsible for third-party errors. No representation is made with respect to the accuracy, completeness or timeliness of information or opinions herein and CWA assumes no obligation to update or revise such information or opinions.

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