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In Investing, It’s When You Start And When You Finish

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An example

If you invested money at the end of 1930 and withdrew it in 1950, the stock market would have returned about 2 percent a year after inflation and taxes. People who invested after the crash in 1929 in hopes of a quick rebound had to wait many years for their investments to pay off.

Average real annual return


Includes dividends, average taxes and fees. Adjusted for inflation.

This chart at right shows annualized returns for the S.& P. 500 for every starting year and every ending year since 1920 — nearly 4,000 combinations in all. READ ACROSS THE CHART to see how money invested in a given year performed, depending on when it was withdrawn.



–2.0% a year




+8.2% a year



+8.4% a year

In Investing, It’s When You Start

And When You Finish

The Standard & Poor’s 500-stock index has posted double-digit gains for the second year in a row. But the index is still below where it was in early 1999.

So what is the proper perspective?

Ed Easterling, who runs an investment management and research firm from Corvallis, Oregon, faced similar questions a decade ago. In the summer of 2001, Mr. Easterling had a debate with a client about whether investors should expect to achieve long-term average returns in the future.

At the time, the average individual investor expected that the stock market would return about 10 percent a year over the next 10 to 20 years — or about 7 percent after inflation — according to surveys by the University of Michigan’s Survey Research Center, as well as UBS and Gallup.

But historical averages can vary widely depending on their starting and ending points. For example, averages that start before the 1929 crash are substantially different from those that start after it, and Mr. Easterling felt that choosing a single date was arbitrary. In response, he created the chart above, which shows annualized returns based on thousands of possible combinations of market entry and exit.

After accounting for dividends, inflation, taxes and fees, $10,000 invested at the end of 1961 would have shrunk to $6,600 by 1981. From the end of 1979 to 1999, $10,000 would have grown to $48,000.

“Market returns are more volatile than most people realize,” Mr. Easterling said, “even over periods as long as 20 years.”

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This is true for peoples housing investments, too. If you got in 1991, you're still good today. If you got in 2006, your life sucks and you might as well go kill yourself.


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