S&P 500 Return Probability

What does the ProFolio Return Probability Calculator tell us about possible returns for the S&P 500? Since future inflation may or may not match past inflation, we will use the real rate of annual return for the S&P 500, with inflation subtracted out, along with annualized volatility from 12/31/71 through 2/28/17.

The calculator tells us that we should expect an annual return greater than 20% above the inflation rate around 19% of the time or around once every 5.4 years. Additionally, we can expect a return lower than the inflation rate 34% of the time or around once every 3 years. If inflation averages between 0% to 5% we can expect a negative return for the S&P 500 between 23% and 34% of the time or around once every 3 to 4 years. We can also expect an annual return lower than -20% below the inflation rate around 4% of the time or around once every 24.7 years.

The general conclusions we can make is that in general returns of the S&P 500 are usually positive and that big losses (losses greater than 20% below the inflation rate) are statistically very rare events.

Note: The calculator assumes the returns typically follow a normal distribution. The graph shows the probability of an annual return occurring. When the return is above the mean return, the probability is for the return being equal or greater than the value shown. When the return is below the mean return, the probability is for the return being equal or lower than the value shown.

 

Disclosure:

The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.

The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.

Performance data showing past performance results is no guarantee of future returns.

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