I have market data going back to 1793. I ran some averages, and think it would be helpful to consider historical data when deciding one's risk tolerance. I have averages for the larger stock market, the composite bond market, and the traditional 60/40 portfolio allocation.
Here is the data:
| Return Data | Larger Stock Market | Composite Bond Market | 60/40 Allocation |
|---|---|---|---|
| One-Year Total Return | 8.3% | 5.6% | 7.5% |
| Negative Years | 61 | 34 | 53 |
| Positive Years | 168 | 195 | 176 |
| Five-Year Total Return | 48.4% | 31.9% | 43.4% |
| Negative Periods | 25 | 10 | 9 |
| Positive Periods | 200 | 215 | 216 |
| 10-Year Total Return | 119% | 74.0% | 105% |
| Negative Periods | 5 | 2 | 1 |
| Positive Periods | 215 | 218 | 219 |
| 20-Year Total Return | 377% | 200% | 318% |
| Negative Periods | 0 | 0 | 0 |
| Positive Periods | 210 | 210 | 210 |
When you use this data, keep in mind the simple question of when you will need to tap into your investments for the goal you intended. Obviously, if you are young, by all means go all in, but as one approaches retirement, it becomes more prudent to tap the brakes, and investing in fixed income.
References
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Damodaran, A. (2022, January). Historical Returns on Stocks, Bonds and Bills: 1928-2021. Retrieved from NYS Stern School of Business: https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
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