A Look Back at Index Returns

Way back in February, Murray over at the CapitalIdeas blog made reference to The Callan Periodic Table of Investment Returns, which lists the returns from 1985 - 2004 for the following indexes:

• S&P 500 Index


• S&P 500/BARRA Growth Index


• S&P 500/BARRA Value Index


• Russell 2000 Index


• Russell 2000 Growth Index


• Russell 2000 Value Index


• MSCI EAFE Index (International Index)


• Lehman Brothers Aggregate Bond Index

I spent most of yesterday afternoon analyzing the returns of those indexes. Out of all those indexes, the best performer was the Russell 2000 Value Index, which turned in an average annual rate of return (also known as the Geometric Average) of 13.50%. The worst performing index was the Russell 2000 Growth Index, which had an average annual rate of return of 8.59% over the 20-year period. Here's a look at how all eight indexes performed. (Keep in mind that these are not average rates of return but average annual rates of return.)

Index	Average Annual ROR
S&P 500 Index	13.22%
S&P 500/BARRA Growth Index	12.84%
S&P 500/BARRA Value Index	13.16%
Russell 2000 Index	11.54%
Russell 2000 Growth Index	8.59%
Russell 2000 Value Index	13.50%
MSCI EAFE Index	11.44%
Lehman Brothers Aggregate Bond Index	8.84%

Here is a table showing the performance of a portfolio of $10,000 invested equally in each of the indexes (rebalanced annually) over the last 20 years:

Index	Ending Value
S&P 500 Index	$12,187
S&P 500/BARRA Growth Index	$11,665
S&P 500/BARRA Value Index	$12,718
Russell 2000 Index	$13,006
Russell 2000 Growth Index	$12,564
Russell 2000 Value Index	$13,436
MSCI EAFE Index	$13,250
Lehman Brothers Aggregate Bond Index	$11,468
Portfolio Total	$100,292
Average Annual ROR for the Portfolio	12.22%

Not too shabby, if you ask me. But, you could have done even better if you had simply put 1/3 into each of the S&P 500, Russell 2000, and MSCI EAFE. Doing so, would have given you a total ending value of $105,975 for an average annual rate of return of 12.53%. Of course these numbers do not reflect brokerage commissions and management expenses. But, even considering commissions, you still could have built a pretty nice portfolio over the last 20 years simply by indexing.

Tags: Index Returns, S&P 500 Index, Russell 2000 Index, Portfolio Analysis