Key Points
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Using month-end closes from 1950 through September 2026, none of the S&P 500’s 681 completed 20-year stretches finished lower.
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The weakest one, from March 1962 to March 1982, gained about 61% on price, or roughly 2.4% a year.
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Consumer prices more than tripled in the same 20-year stretch.
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The S&P 500 (SNPINDEX:^GSPC) closed at a record 7,818.93 on Oct. 6, and as I write it’s only about 1% under that mark. To anyone putting new money into the index, buying so close to a high can seem like poor timing.
But a long holding period has made the starting point matter far less. I used the index’s month-end closes from January 1950 and paired each with the close exactly 20 years later, giving me 681 completed 20-year stretches through September 2026. (The 500-stock version of the index began in March 1957.)
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Not one of these 681 stretches finished lower, on price alone.
Even the weakest made money. From the end of March 1962 to the end of March 1982, the S&P 500 rose from about 70 to about 112. That’s a gain of about 61%, or roughly 2.4% a year before dividends.
Image source: Getty Images.
Why was 1962 to 1982 so weak?
The stretch was unlucky at both ends. It started around 4% under a record close the index had hit in December 1961, and by late June 1962, the S&P 500 had fallen about 28% from that high.
The middle of the stretch was also tough. The index hit a record in January 1973 and then lost almost half its value by October 1974.
And at the end of March 1982, it still stood around 20% under the record close it had reached in November 1980. The bottom didn’t come until August 1982, about five months after the stretch ended.
The index’s valuation also shrank along the way. By the cyclically adjusted price-to-earnings ratio that Yale economist Robert Shiller tracks (price compared with 10 years of average inflation-adjusted earnings), the S&P 500 went from around 21 in March 1962 to about 7 in March 1982.
How I counted matters a bit. Measure from every trading day rather than month-end closes, and the weakest 20 years runs from March 23, 2000, to March 23, 2020, the low of the pandemic sell-off. Even that stretch gained about 46%. And none of the 14,294 daily starting points finished lower 20 years later.
Dividends and inflation
Price alone misses a big chunk of the payoff, especially then. The S&P 500’s dividend yield was around 2.9% in March 1962 and about 6% by March 1982, going by Shiller’s data.
Shiller’s data also shows what happens if the dividends are reinvested. By his numbers (which use monthly average prices, so they vary a little from month-end closes), the March 1962 to March 1982 stretch had a total return of around 237%, or about 6.3% a year. In other words, reinvested dividends more than doubled the annual return. With dividends, the stretches that started around the 2000 dot-com peak come out weaker, at about 5% to 6% a year.
But inflation took almost all that 237% back. The Consumer Price Index climbed from 30.1 in March 1962 to 94.5 in March 1982, so prices more than tripled.
After inflation, Shiller’s data puts the stretch’s total return at only around 7% — for all 20 years. Anyone who reinvested every dividend kept their buying power and little more.
Most 20-year stretches did much better
The median 20-year gain by my tally was about 279% on price, or around 6.9% a year, and about 94% of the 681 stretches at least doubled. The best, from March 1980 to March 2000, gained about 1,370%.
Including reinvested dividends, Shiller’s data puts the median 20-year stretch at almost 10% a year.
Buying near a high didn’t break the record, either. In 321 of the 681 stretches, the index began within 5% of its record close at the time. All 321 finished higher, but their median gain was lower, at around 219%.
What does this mean for a buyer today?
Sure, this record shows what’s happened, not what has to happen. And one thing about today’s starting point arguably looks worse than 1962’s. The Vanguard S&P 500 ETF (NYSEMKT:VOO) yields around 1.1% as I write, well below the index’s 2.9% yield in March 1962. The next 20 years might need to rely more on price gains than the worst stretch did.
Still, I think the history makes a decent case for buying a fund that tracks the S&P 500 near a record, if the money can stay put for two decades. I’d just plan for something closer to the median than the best case.
Over the worst 20 years since 1950, holding on and reinvesting dividends meant just about keeping up with inflation.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
