The evolution of the stock market in the long term, and inflation

(Published in bolseando2 in Spanish in April 2010)

En tienen unos gráficos muy interesantes de largo plazo sobre el S&;P 500.

Let's observe the following that indicates the evolution of the SP500 from 1870 to 2010, both in nominal value (the one that shows the index that all people can found in many websites) como en valor “;real”;, i.e. discounting inflation, y además nos da los gráficos correspondientes al valor “;total”;, i.e. taking into account dividends received throughout those years and assuming that we reinvest them.

All are interesting, but look at the one in which I've added a regression line.

It is the “real total return”, i.e. the graphic marking the increase of the stock market taking into account dividends and granted the inflation.
Podemos ver que desde 1870 hasta 2010 la línea sube de unos 4.5 a unos 45000, If the year will end on the regression line. Esto implica que un dolar de poder adquisitivo invertido en bolsa en 1870 se habría convertido ahora en acciones por valor de 10000 dólares de poder adquisitivo actual. A great result for the stock market that can encourage to invest in stock market in the long term, thinking in grandchildren and great grandchildren.

Con un pequeño cálculo matemático tenemos que esto representa un crecimiento anual de un 6.8 %, but bear in mind that this is a discounted inflation graph, then we can conclude that la bolsa sube a largo plazo un 6.5 % más que la inflación, consistently, but with large swings, as it is quite often both assert twice as a half of the value corresponding to the regression line.

At this time (Abril de 2010) el SP se encuentra aproximadamente un 25 % por debajo de la recta de regresión.

Place your bets!

[Via: bolseando2 stock exchange and inflation]

Author: Angel

professor, communicator, engineer