S&P 500 Total Return Components since 1960
A couple of interesting things pop out of the graph and table below:
- On a long term basis all of your returns come from earnings growth and dividend yield.
- On a short term basis there can be large returns from changes in sentiment as expressed through changes in the market PE ratio. But on a long term basis, PE ratios are mean reverting and average out at no return.
- 2013 has seen a large increase in PE ratio with below average earnings and dividend yield. But it wasn’t out of the range of historical precedence.
|Metric||Dividend Yield||Earnings Growth||PE Growth||Total Return|