AllFinancialMatters

A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.

Google
 
Web allthingsfinancial.blogspot.com

Monday, July 18, 2005

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.)

IndexAverage
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:

IndexEnding
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: , , ,