The U.S. stock market right now is riskier than you think, writes Mark Hulbert
Will the stock market’s real rate of return please stand up? It’s an important question. Depending on your frame of reference, the U.S. stock market is either performing fantastically or dismally.
Nor is this stark contrast just a product of the past year’s extraordinary volatility. The U.S. market’s comparable annualized return over the past 10 years is almost triple that of the market’s trailing 20-year return — 11.7% versus 4.2%. But that is precisely my point. Even if the future is like the past and equities’ average dividend- and inflation-adjusted return over the next 200 years is equal to its historical average of 6.7% annualized, there still will be lengthy periods along the way in which returns are much better or worse — periods that far exceed any of our investment horizons.
The CAPE hit its all-time high at the top of the 2000 internet bubble, and as you can see from the chart below, the S&P 500’s inflation- and dividend-adjusted return over the 19-and-one-quarter years since then has been barely half the historical average — 3.5% versus 6.7%. According to calculations I made using data provided on Shiller’s website, the stock market’s return over this 19.25-year period is lower than 82% of comparable returns since 1889.
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