My S&P 500 Backtest — Financial Depth
financialdepth.com/sp500-backtest
Quick Summary (TL;DR)
- From 1928–2025, the S&P 500 returned about 10.2% per year (CAGR) with dividends reinvested — roughly 7% after inflation.
- $10,000 invested in 1928 with dividends reinvested would be worth about $140 million today.
- Best year: 1933 (+54.0%). Worst year: 1931 (−43.3%). Positive in 72 of 98 years (~73%).
- Deepest peak-to-trough drop: roughly −64% during the Great Depression.
- Formula:
Final = Initial × ∏(1 + annual return); CAGR = (Final ÷ Initial)1/years − 1.
How S&P 500 Backtesting Works
Backtesting answers a simple but powerful question: what would have happened if you'd invested in the past and held on? This tool runs your chosen amount through the S&P 500's real annual total returns — every dollar of dividends reinvested — for any window from 1928 to 2025. It then reports the final value, the compound annual growth rate (CAGR), the best and worst single years, and the maximum drawdown, so you see both the reward and the white-knuckle moments.
Two details make backtests honest. First, dividends: over long horizons, reinvested dividends are responsible for a large share of total return, which is why a price-only chart badly understates real outcomes. Second, inflation: a 10% nominal return in a 3% inflation year is really about 7% in purchasing power. Toggle the inflation option to view results in today's dollars.
The numbers also reveal sequence-of-returns risk. Two investors with the same average return can end up very differently depending on when the bad years hit — a crash early in retirement is far more damaging than the same crash decades earlier. That's why the maximum drawdown figure matters as much as the headline CAGR.
Key Historical Metrics (1928–2025)
| Metric | Value |
|---|---|
| Average annual return (CAGR, nominal) | ~10.2% |
| Average annual return (real, after ~3% inflation) | ~7.0% |
| Best calendar year | 1933 (+54.0%) |
| Worst calendar year | 1931 (−43.3%) |
| Positive years | 72 of 98 (~73%) |
| Worst peak-to-trough drawdown | ~−64% |