Articles for Financial Advisors

Rolling Period Returns

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.

 

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