Visualizing the Worst Case Real Returns for the S&P 500

We don't often put the cart before the horse here at Political Calculations, but while we were experimenting with how to visually depict the actual worst case real returns ever achieved by the S&P 500 stock market index, we kind of stumbled into the following chart, which we felt deserved its own standalone post (click to enlarge):

Worst Case Real Rates of Return

The chart above depicts our basic findings of the worst-case inflation-adjusted performance of the S&P 500 for all holding periods of 1 to 50 years, on a rolling basis beginning each month from January 1871 through December 2006. The chart assumes full dividend reinvestment, but does not take taxes or commissions and fees into account.

Since this range captures the typical investing "lifespan" of individual investors, we thought it was remarkable that the worst-ever recorded returns to just break even on an investment in the S&P 500 is somewhere between 20 and 21 years, while a positive 3% annualized rate of return will occur sometime between 34 and 35 years.

Meanwhile, for a full career-spanning investing holding period of 45 years, the worst case historical performance of the S&P 500 indicates that the money first invested in the S&P 500 index will return at least 3.6% after inflation.

Although we don't show it in the chart above, as more time passes, the worst-case performance for an investment in the index continues to gradually increase, eventually reaching a range between 5.6% and 6.9% for holding periods running between 100 and 130 years.

The Worst Years Ever for Ending an Investment in the S&P 500

We found that just six years mark the end of the holding periods for the worst ever inflation-adjusted investment performance recorded by the S&P 500. Investments that terminated in 1932, and more specifically in and around June 1932, were by far the worst of the lot, with 24 of the 50 points we charted belonging to this year.

The second worst period to end an investment holding period occurs between 1920 and 1921, which contributed to 14 of the worst 50 year periods. The war years of 1942-1945 is third with 5 of the worst 50 year periods, with 1982 (4), 1974 (2) and 1949 (1) accounting for the remainder.