historical stock and bond returns - crystal ball

Historical Stock and Bond Returns – Predict Future Investment Performance

Historical Stock and Bond Returns-Why You Should Care

I’m a bit obsessed with historical stock and bond returns. Since I’m a control freak, and the future is unknowable, knowing historical stock and bond returns gives me an illusion of control over my investments.

If you’re wondering why you should care about the average bond return or the stock and bond market performance, read on.

Knowing the average portfolio return helps you plan for the amount of growth you can expect from your investments. Many investment calculators ask you to estimate the future return that you expect on your portfolio. Knowing the historical average returns on bonds and stocks is a good starting point to use to estimate your expected future investment returns.

For example, knowing 60/40 portfolio historical returns, helps you to estimate whether you’ll meet your financial goals, or not.

Read: Would you Invest in a 100% Muni Bond Portfolio?

For bond investors, the Bloomberg Barclays US Aggregate Bond Index historical returns will give you an idea of how bonds performed in the past. After all, with the current seasoned Baa corporate bond yield at 3.73%, you need to understand that this is lower than the long term average of 7.29% for this type of bond, according to YCharts.

10 Year Average Baa Corporate Bond Yield

corporate bond yieldsSource: https://ycharts.com/indicators/moodys_seasoned_baa_corporate_bond_yield

Financial educators and investment advisors frequently use the historical return data to help you figure out what returns to expect in the future.

Great – so do historical returns guarantee future returns?

No, not at all.

But, since the perfect crystal ball hasn’t been invented, historical stock and bond returns give you an approximation of how much,  you might expect to earn on an investment portfolio. Historical stock and bond returns are the next best thing to the crystal ball.

Is it possible that historical returns have nothing to do with future returns?

Of course. But if we accepted that premise then we would lack any guide to approximating future returns. So, we’ll start with an assumption, that the past historical bond and stock returns can help guide our future projections.

Historical Stock and Bond Returns From 1970 to 2019

This  chart compares the annual returns of:

  • Stocks, measured by the S & P 500 and bonds
  • Cash, measured by the 3- month treasury bill
  • Government Bonds, measured by the 10 year U.S. Treasury bonds
  • Corporate Bonds – Baa rated – as measured by Moody’s Baa bond index from the federal reserve website (FRED).


historical investment returns 50 years

Data source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

Notice that stock returns are usually higher than bond returns, although not always. It’s also useful to realize that from year to year, there are large differences in both stock and bond returns. 

In some years stocks and bond returns show an inverse relationship, when stocks go up, bonds go down. Yet, that’s not always the case. In 1995, all asset classes were positive. The S&P 500 returned over 37%, while Treasury bills, Treasury bonds and corporate bonds returned 5.49%, 23.48%, and 20.16% respectively.

As high as the returns were in 1995, in 2008, during the sub-prime mortgage crisis and recession, the S&P 500 fell 36.55%. That same year, the Baa corporate bond returns declined an average of 5.07%, while the more stable government bills and bonds gained. In 2008, the short term 3-month U.S. Treasury Bill returned 1.27% and the 10-year U.S. Treasury bond returned a whopping 20.10% as investors sought safer investments.  

Historically, stocks have the best and worst performance.

The 3-month U.S. Treasury bill and cash proxy had positive returns and was the least volatile asset, with the lowest average returns.

Clearly, investing in stocks is the riskiest asset class with the most volatile returns. While bonds are less volatile with historically lower average returns.

Annual Average Return on Bonds and Stocks from 1980 to 2019

The previous graph shows the 50-year annual return on stocks, cash, U.S. Treasury and corporate bonds.

Next, we’ll explore the average annual returns for bonds, stocks, and cash during various periods.

average annual investment returns during various periods

Data source: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

From 1970 through 2019, the stock market returned roughly 10.50% while cash, 10-year Treasury Bonds, and Baa corporate bonds averaged 4.58%, 6.99% and 9.18%. Each one of these asset classes outperformed the 90 year average returns.

During the most recent ten year period, the S&P 500 earned an average annual 13.44% return, outperforming returns of all prior time periods.  Similarly, the paltry 0.51% return of the 3-month Treasury, cash proxy has been inordinately low from 2010 through 2019..

What does this mean going forward?

Can we use historical returns to predict the future?

Reversion to the Mean Drives Future Investment Returns

“Mean reversion is a theory used in finance that suggests that asset prices and historical returns eventually will revert to the long-run mean or average level of the entire dataset.,” ~Investopedia

If mean reversion holds true then you would expect financial asset returns to behave in a way that their average going forward would lean towards lower returns. This would balance out the recent higher than average high returns.

In other words, compare the recent ten-year  average 13.44% S&P 500 stock market with the 9.71% of the prior 90 years. If mean reversion holds true then the average stock market return going forward will be significantly below 9.71%.

Erik Conley at ZenInvestor predicts that the stock market will average in the low single digits over the next ten years, or possibly in negative territory. Other experts suggest stocks will average a bit higher, possibly the mid-single digits.

With the recent rosy stock market returns, you may not remember that the stock market started the century in negative territory.

Take a look at the S&P 500 average stock market returns during the first decade of the 20th century, after the dot com tech bubble burst:

S&P 500 returns 2000 to 2010

Data source; http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html

During the first three years of the decade, the stock market lost 9.03%, 11.85%, and 21.97%. If all of your investments were in the stock market, that would have been a painful three years.

During the first decade of the century, the average annual stock market return was negative .726% according to the DQYDJ.com S&P 500 calculator.

Thus, reversion to the mean applies as the annual stock market return for 2010 through 2019 is 13.44%.

Notice the 3-month treasury bill returns, the cash proxy, during the previous ten years. The average 0.51% return is well below 4.58% average return of the prior 50 years.

Does this mean that cash-type investment yields are poised to rise?

In the near term, the Federal reserve open market committee drives interest rate policy and has promised to keep interest rates low. That’s why we can expect current cash yields to remain low – for the near term.

The monetary policies in place today that drive short term yields suggest that rising short term interest rates aren’t likely for a while.

What about bond performance? Can we expect future bond yields to rise?

On January 31, 1986, the Baa corporate bond yield was 11.36%. Yet, as demonstrated by the graph at the beginning of the article shows corporate bond yields have trended downward since 1986, with a few periodic reversals.

So, future bond performance appears to be more of a mystery.




If the reversion to the mean theory holds true, then over the next decade or so, we may see higher interest rates and higher bond yields. Yet, the problem with this calculus is that as interest rates rise, bond values fall. And with current low interest rates, there’s more room for them to rise than fall.

By examining historical bond and stock returns, you can use the reversion to the mean theory to inform future return projections.

What Were 60/40 Portfolio Historical Returns?

Many portfolio managers, financial planners and investors adhere to a 60/40 investment portfolio. This equates to 60% invested in stocks and 40% invested in bonds.

To calculate a 60/40 portfolio historical return, we’ll use the S&P 500 average returns for the 60% stock portion and the 10-year Treasury bond average returns for the bond/fixed investment category.

Your return will vary depending upon how many distinct stock asset classes and types of bond assets you select.

Using the above data, had you invested in the 60/40 portfolio, your average annual returns would have been as follows:

  • 1928 to 2019 – 7.78%
  • 1970 to 2019 – 9.10%
  • 2010 to 2019 – 9.72%

Now comes the tricky part, using the reversion to the mean theory to approximate future returns.

If we assume that going forward the S&P 500 will return 6% on average and that the 1-year Treasury Bond will return 4.0% then we can expect the future annual return on a 60% stock and 40% fixed investment portfolio to yield approximately 5.2% annually.

Learn: Should I Buy Bonds Now?

The projected 5.2% average annual return suggests that since recent investment growth has been above the long term averages that going forward, investment returns will be lower than average.

Risk Tolerance and Historical Investment Returns

Your risk tolerance, or comfort with the ups and downs of your investment portfolio will drive your investment mix.

More conservative investors and those that are approaching retirement will lean towards an investment portfolio with a greater percent of bond type investments.

Younger and more aggressive investors will own greater percentages of stock investments.

This “Best Asset Allocation Based on Age and Risk Tolerance” will give you a rubrick for choosing your investment mix.

You’ll also find risk tolerance and asset allocation templates. I also like Rick Ferri’s Core 4, for easy to craft investment  portfolios.

After you’ve selected a reasonable asset allocation, then use the historical asset class returns to drive your expected future returns.

Be cautious of websites that suggest future stock market returns will be greater than 9 or 10%. Maybe this will hold for a year or two, but the chances are slim that the stock and bond market returns will match those of the previous decade.

Use Historical Stock and Bond Returns to Project the Future-An Imperfect Approach

Ultimately, you want to create a diversified investment portfolio, so even if one asset class tanks, you’ll be saved from disaster with other better performing ones.

For example, during the first decade of the century with deplorable stock market returns, emerging market stocks averaged over 9% per year.

Investment Returns from 2000 through 2009Investment returns 2000 through 2010

Image source: https://www.forbes.com/sites/advisor/2010/09/13/its-not-really-a-lost-decade/#582a10f7cf81

If your portfolio was well-diversified with investments incorpoating international and U.S. stocks along with mid- and small-cap equities and a smattering of bonds, then your returns would have been positive during the first decade of the century. The all large-cap US stock and developed markets stock portfolios suffered the most during the early 2000’s.

Average Bond Return and Average Stock Return Wrap Up

No one can predict future investment returns. But, the educated investor who’s aware of the average bond returns and the average stock returns has a leg up on the less-informed investor. The most successful long term investors take the time to learn about investment markets history.

By learning about returns of bonds vs stocks for the last 30 years or so, you’ll have a barometer for the range of stock and bond returns. Then, integrate the reversion to the mean theory, economic news, the Fed and world events into your stock and bond market analysis. 

Understanding these concepts will make you a confident investor today and into the future.

Featured image credit: Photo by Drew Beamer on Unsplash

1 thought on “Historical Stock and Bond Returns – Predict Future Investment Performance”

  1. Hello Ms. Friedberg,
    I am a real estate appraiser in Ottawa Canada trying to help one of our Migmaw First Nations and the government of Canada settle a land claim originating in 1862.
    I am looking for a time series of long bond rates for the US that goes back at least as far as 1862 to help me model the loss of use of the land. Do you possess such data and on what terms would you be willing to share it? I will leave my email below if you have any questions.

    Thanks for your consideration,

    Norris Wilson BA, AACI

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