Aggregate Bond Index Returns vs. Stocks '80-'18
Finding the year-by-year total returns for the major indices can be a challenging task, so investors should find the following table useful. The left column shows the return of the Barclays U.S. Aggregate Bond Index (which was known as the Lehman U.S. Aggregate Bond Index prior to Lehman Brothers’ collapse).
The index measures the performance of investment-grade bonds in the United States. According to Babson Capital, as of February 2011, the Index consisted of “approximately 8,200 fixed-income issues and is valued at around $15 trillion, representing 43% of the total U.S. bond market."
The S&P 500 Index measures the performance of the 500 largest companies in the U.S. stock market.
Find out more about how stocks and bonds stack up on a long-term basis.
The table below shows the return of the two indices on a year-by-year basis between 1980-2018.
Barclays Aggregate Statistics
Years Positive: 35 of 39
Highest Return: 32.65%, 1982
Lowest Return: -2.92%, 1994
Average Annual Gain (1980-2018): 7.67%
(Note: this is simply the average gain, not an average annualized total return.)
S&P 500 Statistics
Years Positive: 31 of 39
Highest Return: 37.58%, 1995
Lowest Return: -37.00%, 2008
Average Annual Gain: 12.65%
Years Bonds Outperformed: 12 of 39
Bonds’ Largest Margin of Outperformance: 42.24%, 2008
Bonds’ Largest Margin of Underperformance: -34.31%, 2013
A 50-50 Split
How would a 50-50 allocation between the two indices have fared?
Years Positive: 33 of 39
Highest Return: 28.02%, 1995
Lowest Return: -15.88%, 2008 (The others were 2018 (-2.22%), 2002 (-5.92%), 2001 (-1.73%), and 1994 (-0.80%)
Average Annual Gain: 10.16%
This shows that investors would have given up about 20% of stocks’ return with the 50-50 split, but the combined portfolio also would have had a lower downside risk.
Return Data from 1928-2013
Once the sample is enlarged, the performance gap increases.
The Federal Reserve Bank of St. Louis has measured the returns of stocks, Treasury bills, and 10-year Treasury bonds since 1928.
Note that these represent different investments than those presented above, since neither the S&P 500 or the Barclays Aggregate date back that far.
Three key takeaways from 1928-2013 are:
- Stocks averaged an annual return of 11.50% in the period from 1928-2013, while T-bills and T-bonds averaged 3.57% and 5.21%, respectively.
- $100 invested in stocks in 1928 would have grown to $255,553.31 by the end of 2013, while $100 in T-bills and T-bonds would have grown to $1,972.72 and $6,925.79, respectively.
- T-bills produced positive returns in all 85 calendar years, while T-bonds gained in 69 of the 85 years (81%) and stocks rose in 61 (72%).
The S&P 500 clearly posts higher annualized returns, but the extreme fluctuation during market swings can make it a turbulent investment. Tracking against the Bond Indices shows that a 50/50 split portfolio is a serious contender.