Investment Lessons from the Past: How Historical S&P 500 Returns Can Improve Your Strategy

Last updated: Apr 23, 2023

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Discover how studying historical S&P 500 returns can help improve your investment strategy. Learn valuable lessons from the past.


Have you ever looked at the stock market and felt overwhelmed or unsure of where to begin investing? You're not alone. Many people are intimidated by the market and fear losing money. However, the reality is that not investing at all can be more damaging in the long run.

Understanding historical S&P 500 returns can help improve your investment strategy and provide a reality check. While the stock market has seen tremendous growth over the years, there have also been periods of stagnation and decline. It's important to take a closer look at these times and understand the reasons behind them.

Additionally, those who don't understand how the S&P 500 index works are more likely to fear the market and perform worse than the market. On the other hand, those who have a grasp of the index and its patterns can often sit back and let their strategy do its thing.

In this article, we'll use the Investment Time Machine tool to show you what your investments might look like if you had invested in the S&P 500 since 1928. We'll also discuss the advantages and disadvantages of lump sum investing versus dollar cost averaging, and why lump sum investing is generally better in the long run. By the end of this article, you'll have a better understanding of historical S&P 500 returns and how they can improve your investment strategy.

S&P 500 Performance from 1928 to 2022

Investing in the S&P 500 between 1928 and 2022 would have yielded a total return on investment of 21,518%, which means that every $1 invested would have grown to approximately $216.19. However, the compounded annual growth rate (CAGR) return is "only" about 5.89%.

CAGR return is the compounded growth rate, which means that the investment would have returned 5.89% for each year, with the returns being reinvested for a compounding effect.

It's often stated that the stock market averages 8-10%, but this isn't always the case, even if you had invested over this extremely long period.

S&P 500 Performance from 2000 to 2015

If you had invested in the S&P 500 between 2000 and 2015, you would have only gained a 40% profit, with a modest compounded annual growth rate (CAGR) return of 2.29%. However, it's worth noting that the market was extremely overvalued in the year 2000, which eventually led to one of the biggest crashes in history.

Even though the 15-year period from 2000 to 2015 only led to a 40% gain, it's important to remember that this wasn't that long ago, and such periods of slower growth can happen from time to time. It's a reminder that investing in the stock market can have its ups and downs, and it's important to take a long-term perspective and stay invested even during market downturns.

When the Market is Down: Can We Expect a Rebound?

When it comes to predicting the stock market, we often look at past trends and patterns to try and make sense of the present. One such pattern is the idea that when the market is down one year, it's likely to rebound the next.

While there is some truth to this idea, it's important to remember that it's not a hard and fast rule. Looking at historical data, we can see that there are instances where the market has remained down for several years in a row.

For example, the years 2000-2003 were all down years, and it took several years for the market to fully recover. Similarly, the years 1973 and 1974 saw back-to-back losses, as did the years 1929-1932.

Of course, there are also plenty of instances where the market did rebound after a down year. But the point is that it's not always a guarantee. As investors, it's important to be aware of this and make informed decisions based on a variety of factors, rather than relying solely on past patterns.

What Happens When the Market Goes Up?

While it's impossible to predict the future of the market with certainty, there are certain patterns that we can observe from past market movements. Generally, when the market experiences a downturn followed by an upturn, it's more likely that the bull run will continue.

However, it's important to remember that the market is always subject to fluctuations and there are no guarantees. Even though it seems more likely that the market will go up after a positive year, this isn't always the case.

In fact, we often see clusters of down years followed by clusters of up years, rather than a consistent up and down pattern. A bull run can last for several years, but eventually, there will be a correction.

It's important to approach the market with a long-term perspective and not get caught up in short-term gains or losses. By investing wisely and diversifying your portfolio, you can weather the ups and downs of the market over time.

Dollar Cost Averaging: Why It's Popular

Dollar cost averaging is a popular investment strategy, and for good reason. It involves regularly adding to your investment portfolio over time, regardless of the market's ups and downs. This approach can help reduce the risk of investing a large sum of money all at once and potentially suffering losses if the market dips shortly afterward.

While dollar cost averaging may be a safer option, statistically speaking, lump sum investing has the potential to perform better. If you know you can't predict the market, it's more likely that you will gain the most if you invest everything right away.

That being said, there's no way to predict with certainty how the market will move in the short-term. The odds are more likely that the year following a market gain will also be a gain, but this isn't always the case. The more years ending with a gain, the greater the odds become of a down market. On the flip side, the more down years in a row, the more likely it is for the market to go up.

It's hard to predict how long a bull market will last, but if we see one that lasts an unusually long time, say 15 years or more, the odds are high that we will eventually see the market go down. That's why dollar cost averaging can be a smart choice for those who prefer a more cautious approach to investing.

Imagine tossing a coin. The odds of getting heads or tails are 50/50. But, let's say you just got tails. The odds of getting tails again on the next toss is only 25%, and the odds of three tails in a row is only 12.5%. As the odds move away from what's considered usual, it becomes more likely that things will eventually even out.

This means that even though it's possible to get 5 tails in a row, the odds of getting 6 tails in a row drop to only 1.6%. It's important to keep in mind that the strategy you choose may not work immediately, but it's destined to work out eventually.


Although short-term market trends can be difficult to predict, there are often signs that indicate the possibility of a downturn. For example, if there has been a bull market for several years, the likelihood of a downward trend increases. On the other hand, the start of a bull market usually signals several more years of growth, but this is not always the case.

Consistently adding to the market is generally a sound strategy, but there is no guarantee that every investment will result in a significant return. For instance, if you had invested during the 2000s, by 2015, you would have only seen a 40% return.

However, by utilizing an investment time machine, we can gain a clearer understanding of how the market works and what could have happened had we invested at any given point in time. Despite the inherent risks and uncertainties of investing, with careful planning and thoughtful decision-making, it is possible to achieve financial success in the stock market.