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Historical U.S. Equity Returns for a 5-Year Horizon

January 2, 2024 • Posted in Equity Options

A subscriber asked about the historical experience (distribution of outcomes) of an investor with a 5-year horizon (holding period). To investigate we consider returns for 5-year intervals rolled annually at the end of the year based on:

  1. Annual nominal and real total returns for Shiller’s long-run S&P Composite Index during 1871-2022, offering 146 overlapping 5-year intervals (only 29.2 independent intervals). We frictionlessly reinvest dividends annually.
  2. Annual nominal capital gains for the S&P 500 Index during 1927-2022, offering 91 overlapping 5-year intervals (only 19.2 independent intervals).

Using much shorter samples available for assets such as exchange-traded funds offers results and comparisons of very low reliability. Using annual returns for the two indexes as described, we find that: (more…)

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