The Motley Fool Discussion Boards

Previous Page 
Investing/Strategies / Retirement Investing 

URL:
http://boards.fool.com/distributionsofsp500returns30615891.aspx


Subject: Distributions of S&P500 returns  Date: 3/31/2013 5:34 PM 
Author: Rayvt  Number: 71605 of 78166 
[Spun off from the 7702 thread.] Whenever the topic of annual floors and caps comes up, the question arises of: What do the returns look like? How many times is the annual return of the S&P500 below the XX% floor, and how many times is it above the YY% cap? I computed the rolling 12month returns of the S&P500 index (excluding dividends) beginning Jan 1975 and ending Dec 2012. That's 37 years, and 456 rolling annual periods. The worst 12month loss was 45%. The best 12month gain was +53%. Here's the table of the distribution of the returns. (Explanations following.) Gain Cnt Pct Cum pct Weighted Floor/Cap Each row represents one bucket of periodic returns. "Gain" is the annual gain. "Cnt" is the number of periods with a return in that bucket. For example, 7 periods had a gain of 0% to 1%. That's the 0% bucket. "Pct" and "Cum pct" is the percentage of that cnt of periods. The next question is: How much does each bucket contribute to your overall gain/loss? "Weighted" is the average gain of the bucket multiplied by the Pct. For example, 7 periods were in the 0% bucket, which has average gain of 0.5%, and that happens 1.5% of the time. That bucket help you only a little bit. Another bucket had 7 periods, that's the 10% bucket, with an average loss of 9.5%. The 10% bucket hurts a lot more than the 0% bucket helps. Basically, a big Weighted value is a big contribution to the overall gain, and a negative weighted value is harmful to the overall gain. The total row is the sum of all those individual weights, which is 9.8421. "Floor/cap" column: Obviously, if you get rid of negative values, the total will be higher, which means that the overall gain will be higher. Setting a floor of 0% does just that. But they also impose a cap  in this example 12% cap. Everything above 12% is capped to 12%. The floor/cap column is the weighted values is all the b 