total returns over the last 9 years

Or that a small subset of the index was priced too high. It's interesting to look at the list of the top 10 issues through time, it helps put this in perspective. This link downloads an Excel list of the top-10, through many years, from the S&P site:

It wasn't so much an S&P 500 issue as a Nasdaq 100 issue, though of course many non-Nasdaq stocks were swept in as well. But the S&P 500 not only inflated in valuation, but also became dominated by companies that were relatively unimportant in terms of total sales and profits and role in the US economy. Their market value (and weighting in the S&P 500) came to dominate the index.

In 1999 Microsoft was #1, and Cisco, Intel, Lucent, and AOL were all on the top-10 list as well. Even Proctor & Gamble got the bump. Now, only Microsoft remains on the list and its market cap as of 12/31/07 was just more than 1/2 of what it was back in 1999. Cisco still hasn't managed to grow enough to earn even $1.50/share annually, though its price was over $70 at one point - almost 10 years ago - on the basis of its future earnings power (ostensibly).

The numbers don't look quite so glum if you view the S&P 500 ex-QQQ or, even better, a large value index that dodged the fluffiest of growth stocks entirely. It reinforces the lesson that buying a stock is buying earnings and if they aren't going to be high enough, you shouldn't pay much for the stock. One might scan the current top-10 list and see if there's any relatively unimportant companies that have a place on the current list; in a way it puts 2007 vs. 1999 in perspective.

I wonder what the commodity returns would be if they adjusted for the various costs associated with actual investments. It's not quite the same thing as buying and holding an index fund in the asset class for 9 years.

-Tad

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I suspect that the best conclusion from this interesting data is not to buy this or that, but rather to DIVERSIFY!

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S&P is really 6% if you include re-invested dividends. But thats still no better than treasuries.

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site:

Probably the commodity index used most often in asset allocation studies is the Goldman Sachs Commodity Index (GSCI), which S&P has now adopted. An IShare ETF tracking that index, ticker symbol GSG, has an expense ratio of 0.75% . I don't think expense ratios usually include bid-ask spreads paid, although they will affect the total returns.

Any commodity index will have a heavy weight in energy and therefore oil. One could probably get some of the benefits of the commodity exposure by owning just oil futures. There are brokerage firms such as OptionsXpress (OX) that allow one to have futures positions, stocks, and mutual funds in a single account. The current market in December

2008 crude oil futures (WTI) is 101.86 (3) Ask 101.89 (1) Offered

and the multiplier is $1000, so that a single contract controls about $100K of oil, and OX commissions on futures trades are about $10 per round trip. The biggest expense if one holds such a position for a year will be that OX does not pay interest on the margin one must put up, which is currently about $7400 per contract of crude oil. I estimate the annual interest expense as a fraction of notional exposure to be 0.22% if interest rates are 3%, with brokerage and bid- ask amounting to another 0.04%, adding up to 0.26% -- not that high.

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Looks like a good time to have been buying. Hope it continues.

-HW "Skip" Weldon Columbia, SC

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I don't think so. The table (and the article it's from) specifically talk about "total return". That means re-invested dividends are already included in that near-zero figure for the SP500.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

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This isn't strickly true -- it's possible to use t-bills as margin and then get the interest on the margin money. The money is tied up and the t-bills have to be in the margin account. Also some cash is needed too, it can't all be t-bills.

T-bill (for use as margin) policies at different commodity trading firms differ, but have some similarities. Ask your firm...

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I just think it's interesting they chose to compute returns over a 9 year period. Not 5, 10, 15, some usually used period of time. Yes, I know the stock market has been particularly interesting since 1999, but it's not a very useful time frame.

Elizabeth Richardson

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Me, too, Joe. It's one of the two main reasons we're able to have retired with my husband in his early 50s.

Elizabeth Richardson

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No, the 2.46% annualized is TOTAL RETURN.

That figure is one of the benchmarks I use for my own investing, and I've got month-end figures for S&P500 Total Return dating back to 1975. (I originally got these figures from Barra, but now they can be found on the S&P website).

For the same period (3/1/1999 - 2/29/2008), the S&P Midcap 400 is 10.48%; and the small cap 600 is 10.55%.

--ron

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