Rolling Period Returns
An interesting (and better) way to look at return and risk combined is by seeing how an asset category fared over a number of rolling periods. A rolling period includes two or more continuous years and all such periods over the time frame selected. As an example, over any given 10 years, there are eight 3-year rolling periods (1986–1988, 1987–1989, 1988–1990, 1989–1991, etc.). The advantage of using rolling periods is bad returns cannot be hidden as easily. Rolling periods provide an “apples to apples” form of comparison.
Listed below are all 5-year rolling periods over 37 years (1980–2016). Over 37 years, there are 33, 5-year rolling periods. The table shows how often different investment categories enjoyed positive returns, looking at all 5-year periods.
Percentage of Time Positive Returns
All 5-Year Rolling Periods [1980–2016]
Category | # of positive periods | % of the time |
Large cap stocks | 28 out of 33 | 85% |
Small cap stocks | 29 out of 33 | 88% |
REITs | 31 out of 33 | 94% |
Long-term gov’t bonds | 33 out of 33 | 100% |
Med-term gov’t bonds | 33 out of 33 | 100% |
T-bills | 33 out of 33 | 100% |
The huge equity market losses in 2008 reduced the number of positive 1- and 5-year periods for stocks and REITs. The table below shows the number of positive periods, assuming holding period was just 1 year.
Percentage of Time Positive Annual Returns [1980–2016]
Category | # of positive periods | % of the time |
Large cap stocks | 30 out of 37 years | 81% |
Small cap stocks | 31 out of 37 years | 84% |
REITs | 32 out of 37 years | 86% |
Long-term gov’t bonds | 30 out of 37 years | 81% |
Med-term gov’t bonds | 33 out of 37 years | 89% |
T-bills | 37 out of 37 years | 100% |
Even for investors who are not patient, the odds of making money in any one of the six categories listed above are quite high, assuming a holding period of just one calendar year.