Featured News

More Articles  Printer Friendly Version

 

Stocks Returned +8.3% More Annually Than 90-Day T-Bills In Past 20 Years

5011 1

In the last few weeks, stock prices corrected by as much as 12.5%. As of today’s close, stock prices are about 5% lower than the January 3rd all-time high. A correction in stock prices may still be under way, as Russia threatens the modern world’s geopolitical framework by invading Ukraine, and the U.S. Federal Reserve just began tightening credit to extinguish the worst inflation flareup in 40 years, while the Covid-19 pandemic threat to public health and the worldwide economy lingers.

Which makes this the perfect time to review the equity risk premium: how much investors have been rewarded for taking the extra risk of investing in stocks instead of rolling over 90-day Treasury Bills, which are said to be “risk-free.”

Stocks, as measured by the Standard & Poor’s 500, in the 20 years ended December 31, 2021, averaged a +9.5% annual return, nearly seven times the +1.2% annual return on the risk-free 90-day U.S Treasury Bill. Backed by the full faith and credit of the U.S. Government, T-Bills are considered a riskless investment, while the value of stocks is subject to ups and downs and, in theory, your entire investment could be lost in stocks.

Subtracting the return on T Bills from the return on stocks, the resulting 8.3% is the premium paid for taking the risk of owning U.S. stocks over the 20-years. To be clear, investing in America’s 500 largest publicly-held companies earned an average of 8.3% more annually than a risk-free investment in the past 20 years.

5011 3

This 20-year period encompassed three frightening bear markets -- the tech crash of 2002, the financial crisis of 2008, and the Covid downturn of early 2020. Past performance is no guarantee of your future results and that, paradoxically, is precisely why investors are paid a premium for owning stocks.

Yes, stocks are risky and past performance is no guarantee of your future results! That is precisely why stocks have returned 8.3% more annually than U.S.-Government-guaranteed investments through three bear markets and financial crises of the 20 years ended December 31, 2021.

5011 4

The Standard & Poor’s 500 stock index closed this Friday at 4,543.06. The index gained +0.51% from Thursday and +1.77% this past week. The S&P 500 is up +68% from the March 23, 2020, bear market low.

Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances.
The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions.
This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.


Email this article to a friend


Index
Four Signs A Recession Could Be Short And Shallow
Odds Of A Soft Landing Shrunk After Friday's News
Bad Inflation Surprise Sends Stocks Down Sharply
It Could Be A Long, Hot Summer For Investors
What A Difference A Week Makes
Amid Stock Market Turmoil, +2.3% Growth Projected In 2022
Staying On Track Amid The Ukraine And Inflation Crises
For Investors, 2022 Is Turning Into A Test
Is The Economy Brightening? Or Is The Federal Reserve Slamming The Door On Growth
Financial Economic News In Perspective
Stocks Closed Lower This Week On Inflation Fears
The Main Risk To Investors Now Is Federal Reserve Policy
Service Sector Jobs Are Catching Up
Perspective Amid A Moment Seeming Fraught With Investment Risk
Two Years After The Pandemic Began

This article was written by a professional financial journalist for Blattel & Associates and is not intended as legal or investment advice.

©2022 Advisor Products Inc. All Rights Reserved.

The articles and opinions on this site are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you consult your advisor with regard to your individual situation.
All summaries/prices/quotes/statistics presented here have been obtained from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. Past performance is no guarantee of future results.
When you access certain links on the Blattel & Associates website you may leave this website. We do not endorse the content of such websites nor the products, services or other items offered through such websites. Any links to other sites are not intended as referrals or endorsements, but are merely provided to the users of the Blattel & Associates website for convenience and informational purposes.
Robert Blattel is a CERTIFIED FINANCIAL PLANNERTM practitioner. The partners of Blattel & Associates are not registered in all states. Please contact us to verify availability in your state. This is not an offer to buy or sell any security.
CFP® and CERTIFIED FINANCIAL PLANNERTM are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
Securities and Investment Advisory Services offered through Cutter & Company Brokerage, Inc., 15415 Clayton Road, Ballwin, Missouri 63011 * (636) 537-8770. Member FINRA/SIPC.
Privacy Policy can be read at http://www.cutterco.com/privacypolicy.htm.