I have to wonder if these kind of historical comparisons are useful. The market seems so much different than it did prior to 1940 (in my totally naive bystander opinion). 100 years ago you didn't have:
- A diverse economy with many different verticals.
- Globalization of trade
- Massive pension funds with long term holdings
- Average citizens investing capital in other's people production.
- Easy access to trading/information and safer investments like mutual funds and ETFs.
- A giant swath of humans employed in finance all trying to make money and help the market self correct.
- Automated trading that benefits from (and probably creates) minor turbulence to constantly skim money.
What hasn't changed:
- Human psychology
- Economic feedback cycles and interdependence
The market will crash again, but I don't think you can infer too much from the market 100 years ago even as an average.
Thanks for the interesting statistics! Could you share what the source of your data was?
> "All I have to do is buy the S&P 500 and sit back and reap the benefits."
My biggest investment is an S&P 500 index fund, but as all the disclaimers say: "Past performance is no guarantee of future results." One has to be aware that investing in stocks does have a risk of prolonged bear markets and loss of capital.
if only the future was same as the past and the economies remained the same
> But from 2000-2002 there was a 3 year run of negative returns totaling -43.4% (-9.1%, -12.0%, -22.3%).
You can't add returns like that. Each year is cumulative/compounding. At the end of the three years, your investment is down to 0.909 * 0.88 * 0.777 ~= 0.6215, so you've actually lost 48%, not 43%.
Lookup arithmetic vs geometric investment returns for more info.
To really drive the point home, consider the following thought experiment: let's say you have a catastrophic -99.99% return the first year, then a solid 9.74%[1] return for each of the next 99 years. The arithmetic average return is (-0.9999 + 99*0.0974)/100, or about 8.6%, which sounds pretty good. But the geometric (i.e. actual) trajectory of your money is that you started with $1000, went down to $1, and then slowly grew back to exactly $1000! So your actual 100-year return was 0%.
[1] Use the 99th root of 10000 for the exact value needed to make this example work.