I updated my two favorite graphs.
Posted on January 31, 2025

 I updated my two favorite graphs this week.

 

• The first graph shows the cumulative real return for stocks and bonds since January 1, 1926 – the last 99 years. Stocks have averaged ~7.1% real return per year; stocks double in real spending power ~every ten years; 99 years is ten doublings; $1 invested in stocks is now ~$1,000. Bonds have averaged ~2.3% real return per year; bonds double in real spending power ~30 years; $1 invested in bonds in January 1926 is now <$10 in the same spending power. Stocks have outperformed bonds by a factor of 100.

 

 

I read predictions this time of year that the future is not as bright for stocks as the past. I think I’ve been reading predictions like that for more than 15 years. That 7.1% line looks pretty solid to me. We’ve done a little better than that in the last ten years: the data point for 2015 is a little below the trend line and the data point for 2025 is almost right on the trend line.

 

We’ve had three long periods of 0% cumulative return. We don’t want to hit a sequence of return like one of those when we’re retired and in our Spend and Invest phase of life. Those periods started when the cumulative return for stocks soared above the trend line: 70% greater than the data point on the trendline at the end of 1928, 1968 and 1999. We aren’t out of line now; we are basically on the trend line at the end of 2024.

 

I enclose a .pdf of the graph here.

 

• The second graph shows that it is OBVIOUS for younger folks to be invested in stocks for many years. STOCKS ONLY. NO BONDS. Younger folks with employer retirement plan contribute every month to the plan and their employer contributes for them. The graph shows the result of an investment in stocks and in bonds for  each month held for 25 years since January 1871.

 

 

Stocks have NO RISK of loss for 25-year holding periods. Their worst return was a 67% gain. Bonds are risky; they lost money in 22% of the sequences averaging 16% loss in those sequences.

 

Stocks are essentially RISK-FREE relative to bonds: stocks ALMOST ALWAYS (99.5% of the time) out perform bonds.

 

My graphs for shorter holding periods (not shown) aren’t quite as dramatic, but it’s still obvious that those in the save and invest phase of life must invest ONLY IN STOCKS for many years before they hit retirement age.

 

I enclose a .pdf of the graph here.

 

 

Conclusion: I updated my two favorite graphs. One shows the long, long term trend for stocks is 7.1% real return per year; at that rate, stocks double in real spending power ~every decade. The trend line for bonds is ~2.3% real return per year; at that rate, bonds double in real spending power ~every 30 years. Over the last 99 years, stocks have outperformed bonds by a factor of 100.

 

The second graph plots the multiple of real return from an investment in stocks and bonds for 25-year holding periods. Stocks are risk-free because they’ve never returned less than 0%. Stocks are risk-free relative to bonds because they have outperformed bonds 99.5% of the 1,548 25-year sequences of return since January 1871. STOCKS ONLY if you are in the Save and Invest phase of life.