Stock market gains - 401K

[crazyworld]

I just came across this chart, which shows that the lackluster market gains made between 1997 - 2015 - this would be the period I started working and contributing to my 401K.  I have always felt my 401K balance has been a function of just saving and employer match, with not much to show for gains wise and seems like that is correct.  I understand this is just the S&P500, but overall, I have never had to rebalance my 401K investments as they have never seemed to be off balance.  In essence I have pretty much been spinning my wheels.  Or am I missing something?

I'd like to hear other people's thoughts on this; are you in the same postion?  Or do have allocations that have significantly outperformed the S&P 500?  What does it mean for your retirement?

[tonysemail]

congratulations for catching two huge dips in 2001 and 2008.
try extending that chart to 2016

[boarder42]

if you've been investing over time then its perfectly fine for the stock market ot have had rises and falls and end up where you started at your FIRE date.  i mean you're comparing to 1997 when the Shiller PE was in the high 30's to low 40's.  of course you havent seen gains ... but you also didnt invest much then and assuming you kept 80%+ equities during that time you should have made piles.  in the wealth bulding stage reaching FIRE is determined more by the amount saved than the earnings.  i'd be perfectly content with a flat market from here til i turn 37 and FIRE b/c the PE's will likely be way off. and 6% SWR could easily be obtained.

[FrugalSaver]

One of the worst 20 year periods in stock market history. Maybe the old returns return but the last near quarter century have been pretty horrific by historic standards.

[MDM]

congratulations for catching two huge dips in 2001 and 2008.
try extending that chart to 2016

+1

E.g., see http://dqydj.com/sp-500-return-calculator/.

[Metric Mouse]

congratulations for catching two huge dips in 2001 and 2008.
try extending that chart to 2016

+1

E.g., see http://dqydj.com/sp-500-return-calculator/.

Going September '97 to September 2016 shows 4.5% annualized... that's hardly 'great'.

[MDM]

Going September '97 to September 2016 shows 4.5% annualized... that's hardly 'great'.

True.  It's nowhere near Dave Ramsey's 12% (see Why is Dave Ramsey wrong? - Bogleheads.org), but definitely better than the 1.4% shown as the most recent return on the chart in the OP.

It's also higher than the (admittedly conservative - we hope) 4% return (with 3% inflation) we use for our own projections.

[zenyata]

I have to agree - I've come to look at my 401(k), which I've been funding for almost the same period as you have, as more of just a place to park money in an out of sight out of mind situation that yields somewhat better than just keeping it in a bank.

The only thing that has really made a difference is that I was fortunate enough to have my company get swallowed up by a larger employee owned one in 2005 and I began buying into the employee owned stock.  This has provided the only significant gains year to year - due to my company being a large engineering company and the fact that try as we might we can't completely ignore our infrastructure falling apart from sea to shining sea in the U.S.

But as for the 401(k) otherwise - I've seen it all in 20 years - about 4 different companies running it (Merril Lynch, Schwab currently etc.) and I've had a very diversified mix of various funds with really very little in the way of impressive returns to show for it.  I remember hearing at some point near the end of George W. Bush's presidency that the market was being referred to as "the lost decade".  From what I've seen that was very much the case.  There seems to have been an almost infinite number of periods of big gains for a couple months followed by big losses of nearly the same magnitude for the subsequent weeks / months, with the net result of the market just floundering around sideways.  The persistence of this pattern has certainly caused me to wonder about the implications for the future.

[boarder42]

Look at the math you've made money.  Just a place to park money please. Do the numbers you're up a pile

[boarder42]

just for reference you tried to cherry pick what you personally believed to be one of the worst periods.  someone reitring in 1997 with a 4% SWR and not investing ANY NEW MONEY as you were during this time.  was sitting on 2.24MM at the end of 2015 with a starting portfolio of 1MM and an inflation adjusted withdrawal of 40k per year.  meanwhile the inflation adjusted value of their money was 1.66MM at the end of 2015 ... so if your 401k is flat over this time you've been doing something terribly wrong if you're investing new money. 

the actual portfolio only dipped under the inflation adjusted value of the starting portfolio for 2 years in 2008 and 2009 ...

like i said do the math.  and figure out what really cost you if your portfolio was flat.

year      s&p 500    Inflation   Portfolio
1997   33.10%   2.30%   $1,277,760.00
1998   28.34%   1.60%   $1,587,360.46
1999   20.89%   2.20%   $1,869,830.36
2000   -9.03%   3.40%   $1,663,796.14
2001   -11.85%   2.80%   $1,430,177.46
2002   -21.97%   1.60%   $1,083,881.54
2003   28.36%   2.30%   $1,339,104.83
2004   10.74%   2.70%   $1,437,609.89
2005   4.83%   3.40%   $1,463,982.28
2006   15.61%   3.20%   $1,644,693.62
2007   5.48%   2.80%   $1,691,280.68
2008   -36.55%   3.80%   $1,047,026.95
2009   25.94%   -0.40%   $1,266,335.46
2010   14.82%   1.60%   $1,408,262.08
2011   2.10%   3.20%   $1,396,342.15
2012   15.89%   2.10%   $1,570,381.52
2013   32.15%   1.50%   $2,021,289.12
2014   13.52%   1.60%   $2,248,478.29
2015   1.56%   1.00%     $2,242,280.57

[sol]

What the hell kind of chart is that?  What's the unlabeled Y axis supposed to represent? 

Here's a real chart of the S&P500's growth.  Notice the HUGE change since 1997.

[MDM]

Going September '97 to September 2016 shows 4.5% annualized... that's hardly 'great'.

Here's a real chart of the S&P500's growth.  Notice the HUGE change since 1997.

You are both correct.

Calculate (1 + 0.045)^19 and compare an S&P 500 index of ~900 in 1997 with today's value....

Back to that 4.5% number: that is the increase of the index alone, or what an investor would have gained by not selling any fund shares but also not reinvesting any dividends.  With reinvested dividends the return was 6.4%, and that's not bad at all.

[fattest_foot]

Hopefully you're investing between those two years, in which case your should have been able to buy in on all kinds of dips.

It's the problem with looking at just the annualized returns. If the S&P is at 2000 in January of a year, and back at 2000 at the end of the year, it looks flat. But what if it fell to 1400 in March before climbing back up to 2300 in September before falling again in December. If you DCA every month, you made a ton of money.

[Metric Mouse]

Going September '97 to September 2016 shows 4.5% annualized... that's hardly 'great'.

Here's a real chart of the S&P500's growth.  Notice the HUGE change since 1997.

You are both correct.

Calculate (1 + 0.045)^19 and compare an S&P 500 index of ~900 in 1997 with today's value....

Back to that 4.5% number: that is the increase of the index alone, or what an investor would have gained by not selling any fund shares but also not reinvesting any dividends.  With reinvested dividends the return was 6.4%, and that's not bad at all.

And that's a fair point. However, once adjusted for inflation, one is back down around the 4% per year annualized. Still making money, but doesn't show sequence of returns if one were drawing down at 4% either.

[MDM]

...doesn't show sequence of returns if one were drawing down at 4% either.

Thanks to boarder42 we have that.

[Metric Mouse]

...doesn't show sequence of returns if one were drawing down at 4% either.

Thanks to boarder42 we have that.

Shit... I even read that post. :(

[MDM]

just for reference you tried to cherry pick what you personally believed to be one of the worst periods.  someone reitring in 1997 with a 4% SWR and not investing ANY NEW MONEY as you were during this time.  was sitting on 2.24MM at the end of 2015 with a starting portfolio of 1MM and an inflation adjusted withdrawal of 40k per year.  meanwhile the inflation adjusted value of their money was 1.66MM at the end of 2015 ... so if your 401k is flat over this time you've been doing something terribly wrong if you're investing new money. 

the actual portfolio only dipped under the inflation adjusted value of the starting portfolio for 2 years in 2008 and 2009 ...

like i said do the math.  and figure out what really cost you if your portfolio was flat.

year      s&p 500    Inflation   Portfolio
1997   33.10%   2.30%   $1,277,760.00
1998   28.34%   1.60%   $1,587,360.46
1999   20.89%   2.20%   $1,869,830.36
2000   -9.03%   3.40%   $1,663,796.14
2001   -11.85%   2.80%   $1,430,177.46
2002   -21.97%   1.60%   $1,083,881.54
2003   28.36%   2.30%   $1,339,104.83
2004   10.74%   2.70%   $1,437,609.89
2005   4.83%   3.40%   $1,463,982.28
2006   15.61%   3.20%   $1,644,693.62
2007   5.48%   2.80%   $1,691,280.68
2008   -36.55%   3.80%   $1,047,026.95
2009   25.94%   -0.40%   $1,266,335.46
2010   14.82%   1.60%   $1,408,262.08
2011   2.10%   3.20%   $1,396,342.15
2012   15.89%   2.10%   $1,570,381.52
2013   32.15%   1.50%   $2,021,289.12
2014   13.52%   1.60%   $2,248,478.29
2015   1.56%   1.00%     $2,242,280.57

Could you provide the assumptions you used to generate the table?  I was able to match the 1997 and 1998 numbers by assuming
- Annual spending is withdrawn at the beginning of the year
- The investment return is applied to the balance that remains after the annual spending is withdrawn
- Annual spending is the previous year's amount, plus the previous year's inflation.

Compare the "End" (what Excel calculated) and "Portfolio" (from the quoted post) columns in the table immediately below - not sure why they deviate...?

year	Start	s&p 500	Spending	Inflation	End	Portfolio
.	.	.	.	.	$1,000,000	$1,000,000
1997	$1,000,000	33.10%	$40,000	2.30%	$1,277,760	$1,277,760
1998	$1,277,760	28.34%	$40,920	1.60%	$1,587,360	$1,587,360
1999	$1,587,360	20.89%	$41,575	2.20%	$1,868,700	$1,869,830
2000	$1,868,700	-9.03%	$42,489	3.40%	$1,661,304	$1,663,796
2001	$1,661,304	-11.85%	$43,934	2.80%	$1,425,712	$1,430,177
2002	$1,425,712	-21.97%	$45,164	1.60%	$1,077,241	$1,083,882
2003	$1,077,241	28.36%	$45,887	2.30%	$1,323,847	$1,339,105
2004	$1,323,847	10.74%	$46,942	2.70%	$1,414,044	$1,437,610
2005	$1,414,044	4.83%	$48,210	3.40%	$1,431,804	$1,463,982
2006	$1,431,804	15.61%	$49,849	3.20%	$1,597,679	$1,644,694
2007	$1,597,679	5.48%	$51,444	2.80%	$1,630,969	$1,691,281
2008	$1,630,969	-36.55%	$52,884	3.80%	$1,001,294	$1,047,027
2009	$1,001,294	25.94%	$54,894	-0.40%	$1,191,897	$1,266,335
2010	$1,191,897	14.82%	$54,674	1.60%	$1,305,759	$1,408,262
2011	$1,305,759	2.10%	$55,549	3.20%	$1,276,464	$1,396,342
2012	$1,276,464	15.89%	$57,327	2.10%	$1,412,858	$1,570,382
2013	$1,412,858	32.15%	$58,531	1.50%	$1,789,744	$2,021,289
2014	$1,789,744	13.52%	$59,409	1.60%	$1,964,277	$2,248,478
2015	$1,964,277	1.56%	$60,359	1.00%	$1,933,619	$2,242,281

This table shows the Excel formulas for the first few rows.  Subsequent rows have analogous formulas.

1997	=F2	0.331	40000	0.023	=(B3-D3)*(1+C3)
1998	=F3	0.2834	=D3*(1+E3)	0.016	=(B4-D4)*(1+C4)
1999	=F4	0.2089	=D4*(1+E4)	0.022	=(B5-D5)*(1+C5)
2000	=F5	-0.0903	=D5*(1+E5)	0.034	=(B6-D6)*(1+C6)

[boarder42]

i'm not sure why they devieate.  i didnt save the excel worksheet i used to do it so i cant go back and change that your assumptions are correct above i use a lump sum withdrawal at the beginning of each year based on inflation the previous year.  then used the gains on what was left.  i could have made an error in my calcs which may have caused the differences you are seeing, i did it pretty fast.

[mizzourah2006]

That chart shows returns on the S&P 500 over time. What it doesn't show is that unless you haven't invested any money since 1997 your returns are likely to look drastically different than that.

[robartsd]

What the hell kind of chart is that?  What's the unlabeled Y axis supposed to represent? 

Here's a real chart of the S&P500's growth.  Notice the HUGE change since 1997.

My guess is that the first chart was 1) log scale vertical axis (better for comparing rate of return) and 2) without dividend reinvestment (hiding a significant portion of returns). Possibly also inflation adjusted to further the pessimistic view. Any graph of exponential growth (what we expect all investments to trend towards) will appear to have larger gains toward the end if not graphed against a log scale.

[BlueMR2]

My old 401K that I rolled over about 10 years ago has had pretty total gains when I look at it.  However, I don't feel so bad when I realize that it lost nearly 60% of its value the first couple of years after I rolled it over and it took most of that time making it back from there...