What are stock market rolling returns?

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Have you ever heard the phrase “rolling returns”? Looking at historical rolling returns can be useful in understanding past stock market performance, risk related to timing, market fluctuations, and more.

Stock Market Rolling Returns

What are stock market rolling returns?

An analysis of market rolling returns looks at performance results for a set period of time. In fact, it considers the results for every period of time for that length – and that’s why the data is useful.

Let’s look at an example

Perhaps we want to consider the 1-year rolling returns of the S&P 500 Index from it’s start to the end of last year.

The first period examined will be from 1871-1872. The data will contain the market return for that period of time. The second period examined will be from 1872-1873, then 1873-1874, etc. all the way to 2015-2016 (most recent calendar year as of writing this). Once all of the returns for those 1-year periods are calculated, the results can provide some rather interesting data.

What information is available with market rolling returns?

Great question! Otherwise, why bother?

Charted market rolling returns results

Everyone likes charts, right? It’s nice to see something visually instead of looking at a bunch of numbers.

Following through on our example of 1-year rolling returns, here is a chart of the resulting data:

1-year market rolling returns

What does the chart mean?

To get precise numbers we would need to look at the specific results (below), but from the chart we can quickly see a few things.

The worst 1-year return was something lower than a 25% loss. (A lot worse in actuality – see below.)

The best 1-year return was something higher than a 49% gain.

It appears that the returns line crosses 0% returns right around 33%. That tells us that about 1/3 of all examined periods had a negative return, and 2/3 had a positive return.

You can summarize this by thinking that, based on history at least, in any given year your investments might decrease in value by more than 25% or gain 50% or more, and that you have about a 66% chance in any single year that your returns will be positive.

Detailed market rolling returns results

Charts can only represent so much precision though.

For specifics we would look at the actual data returned from the analysis.

Results of a 1-year rolling return analysis show:

  • An average return of 10.724%
  • A maximum return of 139.806% (wow!)
  • A minimum return of -62.283% (wow again!)

What does this detailed data mean?

While past performance does not guarantee future performance, we can draw some interesting thoughts from the past.

Based on this data, we can see that in any given single year the stock market can go way up or way down. An investor might double their money, or lose(*) more than half of it. Investing just for a single year looks to be very risky.

* Note: You only lose money in the stock market if you sell while values are down. In this analysis we’re looking at 1-year periods. So a scenario where an investor would buy, hold for 12 months, then sell. So yes, a lot of people would lose in that case. An intelligent investor will invest for a lot longer than 12 months.

Where rolling returns become really interesting…

Sure, looking at single-year rolling returns is interesting (and a bit scary). But where rolling returns really get interesting – and useful – is by looking at and comparing different lengths of time.

How do 1-year rolling returns compare to 5-year rolling returns? How do 5-year rolling returns compare to 20-year rolling returns?

Comparing results of different rolling periods helps us understand how time in the market impacts risk and returns. That’s a topic I plan to cover soon and you won’t want to miss it. For now I wanted to make sure the concept of stock market rolling returns was understood.

If you have any questions on this topic just let us know in the comments section and we’ll get an answer to you.

Have you ever researched rolling returns in the past? Are you surprised by the 1-year rolling returns used in the example? We’d love to hear from you in the comments section below.

 

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6 Comments

  1. Tim Kim @ Tub of Cash June 22, 2017 at 6:29 pm - Reply

    Thanks for breaking it down. I’m a perma-bull, just for reference. There’s a lot of talk right now about a decade or two of sub 4% returns, but I just don’t buy it. Not saying it can’t happen. But I’m fairly confident that we’ll be able to get 7-10% on average like we’ve always had.

    • Brad Kingsley June 22, 2017 at 7:16 pm - Reply

      Thanks for stopping by Tim. I’m a perma-bull in the sense that I believe the market will continue to go up, and down, and up, and down – but ultimately with an upward trend like it always has. I don’t think there is any good reason to think we’re headed for extended 4% returns. The people who believe that likely missed out on the 12% return last year and the 9% return so far already midway through this year. 🙂

  2. Mustard Seed Money June 23, 2017 at 12:57 am - Reply

    I did some research on rolling returns over a 10 year period. If I remember correctly there was never a down 10 year period ever. Which was really surprising to me. So a bull market was always present which surprised me based on what has happened over the years. But I was aware of shorter periods with bigger spikes which makes some sense.

    • Brad Kingsley June 23, 2017 at 9:02 am - Reply

      Hi MSM, thanks for stopping by! There actually have been a small number of 10-year periods with negative returns. There has never been a 16-year or longer period with negative results though. That’s why buy-and-hold for the long term is the way to go for sure.

  3. Lance @ My Strategic Dollar June 23, 2017 at 1:00 pm - Reply

    Thanks for the info! The market has continued to have an upward trend over time with periods of dips. But overall it’s trended upwards. You definitely have to be in it for the long-term.

    • Brad Kingsley June 23, 2017 at 11:58 pm - Reply

      Yeah, very true. I just used the 1-year for an example in this post. I’ll have another post fairly soon that shows 1 year, 5, 10, 15, etc to show the big difference in returns (and risk) based on different investment timelines. You’re definitely right though – the long-term investors certainly come out ahead. Thanks for stopping by and commenting!

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