2020 Results for CPI, Stocks, Bonds - Calculators Updated
- January 23, 2021
- by Wealth Meta Admin
Our calculators have been updated with 2020 data for CPI, S&P 500, bond, and cash returns.
2020 raw numbers:
- The CPI (consumer price index) increased by 1.2%, which is below the Fed's goal of 2% and relatively tame. This is good news for the economy, or at least the Fed. The CPI tracks inflation, which measures how prices rise slowly over the years. However the CPI-U (urban consumer price index), which our calculators use, doesn't do an adequate job of capturing the reality of rising costs housing, health care or education.
- The S&P 500 had a 18.01% return, another great return in spite of the COVID-19 pandemic which only temporarily derailed stock market growth.
- The 90-day T bill had a 0.9% return (used as the cash return in our retirement calculators).
- 10 year Treasury Bonds had an 11.33% return.
In early 2020 COVID-19 hit and all assets plummeted. The fed stepped in and slashed interest rates. Additionally for the first time the Fed started buying all kinds of assets including bond ETFs to shore up prices. Stocks rebounded off the lows quickly in a v-shaped recovery. To everyone's astonishment the rally kept going, even through the US presidential election, and 2020 ended at near record highs.
The market fluctuates in unpredictable ways. Recall the saying that long term investors who set it and forget it get the best sleep.
Bond returns were again excellent due to the aggressive rate cuts the Fed made. When bond rates go down, existing bonds with higher rates become more valuable. However with rates near zero at this point, the Fed is out of ammunition (although some think bond yields could go negative in the US like they are in many EU countries).
2020 rewarded investors who either rebalanced on the huge COVID-19 dip, or simply stuck to their asset allocations and ignored it all.
For people with investments in a mix of stocks and bonds, rebalancing to match their desired asset allocation would be in order. Stocks gained a more than bonds in 2020. This caused portfolios to tilt towards stocks. This goes without saying that rebalancing should be a regular task as part of checking up on net worth.
Our retirement calculators use backtesting based on historical data since 1928. 2020 was a good year for investors and this moved the averages up a little. When running our Retirement Withdrawal Calculator with default inputs the average resulting balance went up by $110k (+2.1%).
The default settings are to retire with $1M (invested 70% stocks, 30% bonds), with an initial withdrawal amount of $40,000 that gets adjusted by the CPI every year, and to let it run for 30 years.
- Average Resulting Balance $5.30M (2017)
- Average Resulting Balance $5.13M (2018)
- Average Resulting Balance $5.34M (2019)
- Average Resulting Balance $5.45M (2020 update)
Other results are exactly the same:
- Simulations Ending Above Zero (money left over) 98.9%
- Simulations Ending Below Zero (money ran out early) 1.1%
- Simulation Low -$205,544
- Simulation High $16.08M
This is yet another piece of evidence that supports the idea of long term investing.
- CPI data https://fred.stlouisfed.org.
- Stock market, bonds, and cash returns are from Professor Damodaran's Historical Returns spreadsheet.