Annual Returns of Stock, Bond, and Bills since 1928

Here is a simple graph comparing the variation of annual returns for US stocks, US 10-year bonds and US 3-month t-bills. I have included both nominal returns (not adjusted for inflation) and real returns. 

Stocks are of course the most risky of the three with both the highest and the lowest  returns then comes 10-year bonds and finally t-bills with the smallest but the most consistant returns. However, after 3-month t-bills are adjusted for inflation there are many years you will "lose" money. And in years with deflation, your real return will be larger than the nominal return (i.e. you did better holding stocks in 1933 when you take into account the effects of deflation in that year while 1954 had the highest nominal stock return).

Return Data from Damodaran Online | Updated Data | Historical Returns on Stock Bonds and Bills - United States CPI form Measuring Worth. 

Chart created using OmniGraphSketcher; labels added with Adobe Illustrator. 

Inflation and Price/Earnings Since 1880

Copies of this graphic can be purchased at Zazzle

Inflation is when prices go up. However, inflation's relationship to stock prices can be a little more complex. In this graph, I am revisiting historical data I used several years ago in a series of historical graphs looking at the stock market (see GDP per Capita vs US Stock Prices and Real Growth in Stock Returns Dividends Reinvested).

I graphed the price/earnings ratio back to 1880 and highlighted the years that inflation was high and when there was deflation. The P/E is calculated from trailing 10-year earnings. The low inflation years (5% or less) had the highest P/E while the high inflation years has the lowest P/Es. Deflation years had P/Es near the average.

S&P data from Robert Shiller and CPI data from MeasuringWorth. Graphic was created using OmniGraphSketcher.