Friday, December 07, 2007

S&P 500 Trends

I was looking at how my investments were doing the other day, and found myself curious about what some historical trend graphs might look like. I found this chart of the S&P 500 via the NY Times website:

The numbers and red line are my own additions:
1- Data starts in 1971
2- I started working and putting money into 401k plans around here, but I don't remember if I even knew what I was doing enough to pick out stock-based mutual funds. Probably not.
3- After a few years of working and investing more aggressively in 401k funds, around here is when I started putting some of my other savings into mutual funds via E*Trade. I lost a little money at first during that slide into the low point around 2001, but I've had some good gains ever since.
I added the red line just to show a sort of trend-- it's interesting how the 90's seem like kind of an anomaly compared to an otherwise more gradual upward slope without major fluctuations. Also, ever since the 90s, the market seems to fluctuate more year to year-- back in the 70s the line was a sort of smoother upward trend overall, but more recently there are a lot of jagged ups and downs during the larger up-trends and down-trends.

Sometimes people talk about the market as if it is some kind of living creature, or something that has to follow certain rules. It does seem to follow certain patterns sometimes. We are always reminded, past performance is no guarantee of future results, but can past performance suggest that future results will follow similar patterns? I wonder what the shape of this graph will look like 20 years from now...


her every cent counts said...

First off, I love your blog. You're definitely an inspiration in terms of smart spending and saving.

Secondly -- I'm fascinated by the stock market but frightened of it as well. I know that historically the basic indexes have gone up over time, but I also know you can't trust the past to predict the future. I put some of my savings into mutual funds this year, and I've watched it go up and down and up and down. It's basically back where it started right now. I don't mind it flinging back and forth, but I also don't see it making me any money over time if it keeps ping-ponging like that.

I want to buy a condo but at 24 with my freelance income, that seems impossible.

What did you / do you do that makes a $25k bonus some years?

Andrew Stevens said...

The '70s did not actually have an upward trend in the stock market. The market was basically flat from 1965 to 1982, when you adjust for inflation. While this sounds terrible, it's actually just about the perfect investing environment. Ideally, you want a fairly flat market while you're buying stocks and a big run-up when you're done buying and before you're ready to start selling. People who invested a lot in the market throughout the '70s and then retired around '82 or so made out like bandits.

Bitty said...

Completely off-topic, I've tagged you.

This has not a thing to do with personal finance -- yet. But Madame X hasn't taken a crack at it yet, either.

mOOm said...

If you look at percentage changes the last few years have actually had lower volatility. A logarithmic chart would show that:

Madame X said...

Good point Moom, I didn't think of that!

SFGal-- I work in publishing, and had a sales job when I got that bonus.

VinTek said...

Your graph is flawed because a 100 change at the end of the period has a much smaller percentage effect than a 100 point change at the beginning. You should really be using a logarithmic scale. See for an example.