Has the S&P 500 surpassed its historic gains in the 21st century? You might be surprised


The S&P500 (^GSPC -0.33%) is a major stock market index, often considered a benchmark for the overall market. It tracks the performance of around 500 major companies that trade on US stock exchanges.

Many investors will simply adopt a strategy of investing their money in a mutual fund or exchange-traded fund that passively tracks the S&P 500 and hold that position for a long period of time, which has proven to generate strong returns. The index will give you exposure to a broad group of stocks that are generally resilient over the long term, given their size and scale.

However, with the market struggling this year and the S&P 500 firmly in a bear market, down more than 25%, I thought it might be worth taking a look at the most S&P 500 updates and see how the benchmark index has performed since the turn of the 21st century.

Image source: Getty Images.


The S&P 500 was officially launched in 1957. Since then, the index has generated a compound annual growth rate (CAGR) of around 10.67%, including dividends. Adjusted for inflation, this figure would be around 6.8%. Investing $1 in the S&P 500 in 1957 would return over $726 today.

If you look at the market from 2000 to the end of 2021, the S&P 500 generated a CAGR of only 7.51% including dividends, which drops to 5.08% after adjusting for inflation. Factoring in 2022 when it’s over, the numbers will likely look worse given this year’s struggles.

The 21st century has come with its fair share of challenges, including the dotcom bubble, the Great Recession, and the COVID-19 pandemic, all of which have managed to wipe out an incredible amount of wealth. The S&P 500 lost almost 52% of its value during the financial crisis between 2007 and 2009.

Now, of course, it can be argued that these losses were more than offset by subsequent recoveries. More recently, the S&P 500 exploded after the initial pandemic selloff in March 2020, hitting new all-time highs before the end of this year. However, the S&P 500 returned most of those gains in 2022.

The Federal Reserve has also pumped money into the economy through quantitative easing since the Great Recession. With interest rates so low until recently, investors became more aggressive with equities because other, safer investments were simply not yielding meaningful returns.

Should you stick with the S&P 500 for the long term?

Clearly, the S&P 500 in the 21st century has failed to match its historical long-term performance. But with just over 20 years marked by multiple crises, the index’s returns so far this century aren’t necessarily indicative of what its longer-term performance will look like.

Plus, with a 7.5% annualized return this century, owning the S&P 500 would still have made your money grow a lot more than just leaving it in a savings or money market account — and there’s had some volatility along the way.

I believe that over the long term, the S&P 500 will continue to be a great tool for growing your wealth, eventually erasing the losses from this current sell-off, as it has after every bear market in history.


About Author

Comments are closed.