One of the most popular articles on Mindfully Investing is about the historical returns of stocks and bonds. I recently updated the article to include some more free tools for calculating annualized returns over specific periods.
I developed the new tools to improve the historical returns article but also as a learning exercise. Specifically, I wanted to learn how to create online calculators, and I also wanted to learn more about the historical returns data itself and how returns have varied over time.
Annualized Returns Calculators
The two new calculators provide average annualized stock and bond returns (nominal and inflation adjusted) between any two periods based on the data sets from Yale Nobel Laureate Robert Shiller and Aswath Damodaran of the Stern School of Business at New York University, respectively.
Average annualized returns are calculated using a geometric mean, also known as Compound Average Growth Rate (CAGR). Don’t confuse average annualized returns with “average annual returns”, which are calculated by taking the simple arithmetic mean of annual returns across a series of years. Average annualized returns are generally a little lower than average annual returns. More importantly, annualized returns provide a more accurate measure of the returns achieved through investing consistently over many years.
Annualized Return Tables
The calculators are nice, but if you want to compare returns for many different periods or see returns trends over time, the calculators become a little cumbersome. To simplify comparisons of annualized returns over different periods, I created stock and bond return spreadsheets in Excel that show annualized returns for all possible start and stop years contained in these same two data sets. The tables show nominal and inflation-adjusted annualized stock returns and bond returns as well as annualized inflation rates.
The tables are too big to display as a webpage, but here’s an example excerpt from the nominal stock return table covering the period from 1993 to 2017.
To determine the annualized return for any period, find the desired investing start date at the top of the table columns, and then find the desired end date at the left of the table rows. The cell at the intersection of the selected column and row shows the annualized return for the desired period. The color coding in these tables allow you to quickly scan for periods of relatively low (red) versus high (green) returns and see how long those trends lasted.
For example, I started seriously investing in the Year 2000. If you look at the column of numbers under the column labeled “2000”, you can see how my annualized returns were pretty dismal during most of my investing life. My results started to get back into the ball park of “typical” annualized returns for stocks by 2014, but even by the end of 2017 my 6.3% annualized return is still well below the historical average annualized stock return of about 9.1% indicated by the Shiller data. It’s no wonder I turned to meditation and mindfulness to help stick to my long-term investing plans!
I hope you find these tools useful. If you have any suggestions for improvements or other types of tools you’d like to see, please let me know.
