4

I'm using the S&P 500 data provided by Robert Shiller which goes back to 1871.

I've then calculated the percent return for each month, the simple arithmetic average is 0.43%. Calculating the compound annual growth rate from 4.44 to 1550.83 over 1707 months results in 0.34%.

=(1550.83/4.44)^(1/(1707-1))-1

Both of these values are significantly below what I would expect of at least around 0.5%, which would be roughly 6% annually.

Am I doing a some calculations wrong? Is this data not appropriate? Is the notion of 6% long-term average for the stock market incorrect?


Edit: Another way from framing my question might be: how do I calculate the values shown at MoneyChimp on my own? I'm happy to use raw data other than the spreadsheet above.

4

6%? The S&P should be 10.6% average, and a CAGR of 8.92%.

I'm guessing the data you are studying doesn't include dividends, which, in my opinion, is what makes using the index number for certain purposes a bad starting point.

See the Money Chimp site (bad name, great site) for the real numbers between any two years. MC uses the Shiller data as well, and sports a starting date of 1871. Welcome to Money.SE

EDIT - Dan and i exchanged emails. Shiller data is monthly, with the annual dividend number next to the S&P index for each month. One can take the Shiller data and manipulate to be a yearly series, or treat the dividend as 1/12 each month. Either way, the dividend should be taken into account.

  • I added in dividends (column C in the spreadsheet, labeled Dividend), it didn't change the result. Where am I going wrong? – Ðаn Jun 9 '13 at 23:16
  • see the "Robert Shiller" link above; thanks. – Ðаn Jun 9 '13 at 23:22
  • I get a CAGR from 1871 to 2012 of 8.93. Chimp or I may have rounding issues, but nearly identical. I saw your email and replied. – JTP - Apologise to Monica Jun 9 '13 at 23:43
  • @Dan If you are projecting forward, just make sure to factor in P/E trends and falling dividend ratios as well! – JAGAnalyst Jun 17 '13 at 17:18

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.