The Real Story of a Century of US Stock Returns

A century of US stock returns produces a compound annual figure of roughly 10% in nominal terms, 7% after inflation. Most investors know the headline. The underlying data tells a different story.

The 1930s lost a full decade. The 1970s delivered negative real returns. The 2000s from the dot-com peak through the financial crisis produced a flat nominal result. The smooth log chart hides five separate drawdowns of 30% or more since 1929. The average recovery took three to four years. Some took longer than a decade.

The variation shows up in the 20-year rolling returns. The highest since 1926 was about 14% annualized. The lowest was roughly 1% in real terms. The difference comes down to starting valuation. Buying at a high P/E multiple lowered the subsequent decade's return. Buying at a low one raised it.

Research puts the explanatory power of starting valuation at about 40% of the variance in subsequent 10-year returns. The rest is earnings growth, dividends, and luck. The Shiller CAPE today sits above 30. That level historically preceded below-average returns over the next decade. Past performance is not a guarantee. The mechanism is real.

The 'stocks go up over time' narrative works for a 30-year saver who stays invested through the downturns. For a 5-year horizon the outcome depends heavily on where you start. A retiree drawing down capital during a bear market gets a very different result. The century of data says the trend is your friend. The trend also contains traps. Knowing the cycle matters more than the average.