Skip to content

The stock market is doing great

The New York Times celebrates the stock market's record high today with a standard chart showing the S&P 500 since the year 2000. Nothing wrong with that.

But if you really want to know how the market is doing, you should do two things. First, adjust for inflation. Who cares if the S&P is up 5% if inflation is also running at 5%?

Second, you should look at total returns, which includes reinvested dividends. Here it is:

Since 2000, the S&P 500 is up 120% after adjusting for inflation. Not bad. But if you put actual money into a fund that reinvested dividends, it would have returned 250% by now. Even better!

Note, however, that even with reinvested dividends the total return from 2000 to 2013 was 0%. Equities are a good bet in the long run, but sometimes the long run is pretty long.

13 thoughts on “The stock market is doing great

  1. Adam Strange

    Back in the 80's, I remember hearing that, along about this time, the stock market would tank permanently, as all the Boomers started withdrawing their money.

    That hasn't happened, but my investment counselor has been pretty consistently wrong.

    Personally, I ask myself, "What is the best long-term investment in the world?", and my answer has always been "The US economy". My reasons for believing this are:
    1. The US is invulnerable to military invasion,
    2. The US has institutions which promote efficient growth and support for the economically unlucky, and
    3. The US economy is run by rich people who are also politically in control of the laws and economy, and they won't let themselves lose.

    Just bet the way the rich bet, and you should be good.

    1. Adam Strange

      My one caveat to the above:
      The stock market could fall if the US government decides at some point to disallow foreign investment in the US. This would happen if they decided that Americans having jobs is more important than company owners getting richer and richer.
      Lol.
      Not likely, but that is the scenario.

  2. golack

    It's good to look at investments after correcting for inflation. The question is not just "does x beat inflation" but "does x do better than y". Now what's that caveat--past results do not guarantee future earnings? I'm thinking that long flat period reflects a change in "leadership" in the stock market. Tracking P/E ratios would be fun too (or scary)(.

  3. ey81

    The third thing you need to do when graphing stock market returns is to use a log scale on the vertical axis! Otherwise, the graph just keeps getting steeper.

    Of course, if the most recent president is a Democrat, it might be that using a constant scale is a deliberate strategy.

    1. Jerry O'Brien

      A log scale would be better, but the linear scale in this case doesn't make the Biden years look that good. With a log scale, the Obama years would look best.

Comments are closed.