Historical Stock and Bond Returns-1980-2013

By in Asset Allocation, Bond, Economics, Investing, Stocks | 2 comments

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. And I’m not alone in my interest in historical stock and bond returns.

If you’re wondering why you should care and how these returns might help you, read on.

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

Great-so 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, over time, 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 considered that possibility, we would lack any guide to approximating future returns. So, we’ll start with an assumption, that the past may carry into the future. 

Historical Stock and Bond Returns Details from 1980-2013

This chart, sourced from Thomas Kenny, bond expert in the About Money.com article, “Stocks and Bonds, Calendar Year Performance 1980-2013” compares the annual returns of stocks, measured by the S & P 500 and bonds, measured by the Barclay’s U.S. Aggregate Bond  Index (a proxy for the U.S.  bond market). The final column shows the difference between the returns of the bonds versus the stocks.

historical stock and bond returns

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. 

Use the Historical Stock and Bond Returns to Predict (Approximate) Future Returns

The concept of reversion to the mean helps us use historical returns to inform future returns. This theory suggests that prices and returns usually move back towards the average or mean value. This concept applies to average stock prices or even average economic growth.

So, if stock returns have been on a double digit tear and the average historical return is in the 9 percent range, then reversion to the mean implies that in the future returns will be below 9 percent. 

Looking at the historical (simple) averages from 1980 to 2013:

Bonds averaged 8.42% (simple average which is usually higher than annualized total return)

Stocks averaged 11.17% (simple average which is usually higher than annualized total return) 

Before you plunk all of your money down into one asset class or another, drill down a bit into the data.

For bonds, the lowest return was in 1994 with a -2.92% return, and the highest was in 1982 with a 32.65% gain. 

Stocks 37.58% return in 1995 was the highest of the 1980-2013 historical stock returns data. We all lived through the gut wrenching 2008 decline of -37.00%.

Clearly, looking at an average return masks the great volatility underlying these numbers.

Putting Historical Averages in Perspective

The average annual return of the  S & P 500 from 1928-2013 was 9.55% whereas the average annual return of the 10 year U.S. Treasury Bond was 4.93%. Less than the historical stock and bond simple averages from 1980 through 2013, but still respectable.

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

So if long term average annualized stock market returns are 9.55% and recent returns are  well above the averages, then it’s reasonable to assume that future short term returns will be below average. The reversion to the mean concept suggests the potential for a few years of below average returns.

I’m not going to predict the future, but I will turn on the yellow investing caution light.

Don’t expect double digit stock market returns to persist indefinitely. It’s much more likely that future stock market returns will be below both annualized and simple long term averages.

What about bonds

Using Vanguard Total Bond Market Index Fund (VBMFX) 5 year return of 4.05%, you might expect a return somewhat in line with the historical 4.93% return. But, be aware that existing bond holdings will drop in value as interest rates rise. 

What Not to do

Back in 2000 at the height of the dot com bubble, after a year of stratospheric returns, a friend came to me and said he was revamping his portfolio. He was going to sell all of his individual stocks and reinvest the proceeds into mutual funds.

In order to decide which funds to invest in, he looked at recent returns. And that is where he went wrong. He didn’t have the benefit of historical stock and bond return information and was unaware that the few years before the turn of the century offered unreasonably high returns.

My friend proceeded to invest in the best performing funds of the last ten years (1990-2000).

You can guess what happened to his portfolio. Those out performers during the 1990’s became under-performers in the early 2000’s as their returns reverted to the mean.

His newly created portfolio of 1990’s winning stock and bond funds became a losing portfolio during the next decade.

That is why you need to understand historical stock and bond returns as well as the ‘reversion to the mean’ concept. 

He would have been better off, taking some money off the table after the big run-up in stock prices and gradually investing in low cost index funds over the next several years.

Be a Wise Investor

From the 1980 to 2013 time period, bond’s had positive returns in 31 out of 34 years. Stocks went up 28 out of 34 years.

If you divided your assets evenly between stocks and bonds during that time period, your simple average annual return would have been 11.17%, and your highs and lows would have been tempered with the diversified investments.

So if history is any guide, most of the time, your investments will go up, but don’t be surprised if there are a few down years as well.


  1. Excellent data Barb, What I noticed is that the variance for stock is far greater than bonds despite the two being a few percentage points different when we look at the average. This might suggest that Bonds are better for risk averse investors. This data has made me open my mind to reconsidering bond investments. Thanks Barb!

    • Hi Nick, Thanks so much for pointing out that stocks are more volatile than bonds. That is the price that investors pay, for the opportunity of higher returns. And yes, bonds are also a useful component of a well balanced portfolio. As bonds are less volatile than stocks and returns don’t always correlate with those of stocks, they’re a good addition to an all stock portfolio.

      Barbara Friedberg

      November 17, 2014


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