Stock Market Returns Are Likely to Decline for Buy-and-Hold Investors - Part II

In Stock Market Returns Are Likely to Decline for Buy-and-Hold Investors I showed that stock market returns are cyclical and that returns are currently on the downside. Therefore, investors may not be able to count on the stock market to produce large gains for years to come.

In this article I analyzed the annualized returns of all possible 20-year periods of 240 consecutive monthly investments of equal value in the Dow Jones industrial average from October 1928 through January 1987. This analysis assumes that dollar-cost averaging is used for the 240 month investment period.

Like the chart of annualized returns for one-time investments held for twenty years, the chart of annualized returns for all 20-year periods of 240 months of investments exhibits the same two major cycles. The annualized returns from dollar-cost averaging are generally less than returns for the one-time investment approach. But the overall pattern of returns for the two investment strategies is very similar.

Annualized returns have generally declined for investments programs started after 1979 and 1980. The red dashed line indicates that returns will continue to decline.

Like I said in the first article, no one knows for certain where stocks prices and subsequent returns are headed but history suggests that returns are headed down (see red dashed line on chart) for the 20-year buy-and-hold investor. If the current trend of decreasing annualized returns persists, current buy-and-hold investors will see their returns go lower and lower, making it very difficult to make lots of money from stocks. Therefore, people will need to save large amounts of money for their retirement to make up for the shortfall in stock market gains.

To guard against having insufficient money for your retirement, begin an aggressive savings program today.

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Stock Market Returns Are Likely to Decline for Buy-and-Hold Investors

Posted March 29, 2007.