Exponential Wealth: Centuries of Stock and Bond Returns free PDF · 380 pp.
In 1976, Roger Ibbotson and Rex Sinquefield published “Stocks, Bonds, Bills, and Inflation” (SBBI), the first long-run total-return history of the major asset classes. Economists had talked about the equity risk premium for years but as Ibbotson puts it, “SBBI gave us a measure of it.” The data became the standard reference for historical return assumptions, from asset allocation to cost-of-capital work.
This is the 50th-anniversary update, rebuilt from CRSP after Morningstar discontinued the original indices, with the dataset now spanning a full century, 1926–2025.
It recaps what stocks, bonds, bills, and inflation have delivered, then widens out to global markets since 1900, the US before 1926, commodity futures since 1871, bubbles and crashes since 1792, and a forecast to 2050.
It’s a free, encyclopedic reference I recommend adding to your favorite LLM’s investing project folder. It’s like the Farmer’s Almanac for money.
It’s also a great reference for methodologies since the studies entail constructing price series and indices, measuring their statistical features, and addressing pitfalls such as survivorship bias, float vs full-cap weighting, shifting size definitions, overlapping observations, and effective sample sizes.
A sprinkling of fun facts:
- $1 in US large caps in 1926 → $14,751 by end of 2025; $814 after inflation. Long Treasuries: $117 nominal, under $8 real. T-bills: $25 nominal, under $2 real.
- Real compound returns: stocks 6.9%, long Treasuries 1.9%, bills 0.3%.
- About a third of the century was spent below a prior real high: 1929–WWII, 1966–82 (16 years of zero real growth), 2000–2012.
- A 50% three-year run-up was followed by another 50% run-up ~3x as often as by a full reversal (144 vs 50 of 394 episodes, 1792–2024). Crashes were followed by full recovery even more reliably.
- Top 25 companies are ~50% of US market cap, a level last seen in the 1930s. Tech is ~40% of cap.
- This is a non-obvious logical bit: Index total return is attainable by any investor but not all investors, for example dividend reinvestment can’t scale to everyone. Reminds me of these fallacy of composition peculiarities like “paradox of thrift” or treating government finances as if they are a household.
- Investors had the least cash when expected returns are highest.
- Micro cap: 16.5% arithmetic, 11.1% geometric, σ = 37%. Mid cap matches micro on compound return with σ = 24%. Post-1976, micro had the lowest compound return of any size bucket.
- October 1987 was a 1-in-10¹²⁸ event under lognormal i.i.d. The chapter links fat tails to the persistent apparent overpricing of OTM S&P puts.
The book closes with a forecast for 2026–2050, using the same approach Ibbotson and Sinquefield used in 1976. It has 3 steps:
- They anchor interest rates and inflation to today’s Treasury yield curve.
- Resample historical risk premiums.
- Simulate thousands of possible paths.
How did this method fare from 1976 to today?
Pretty well, actually. Although the composition of the return wasn’t quite what they expected.
From 1976 to 2025, the forecast called for a median of ~13.3% a year, but stocks only returned ~11.9%. However, it assumed ~6.7% inflation (it was the 70s after all) when actual inflation was only a bit more than half at 3.6%. Which means nominal returns fell short of the forecast while real returns beat it (~8.1% vs ~6.2%).
At this time, inflation and rates are closer to their 100-year averages, so the yield curve isn’t pushing the forecast much in either direction. What does it say about 2026–2050?
- On raw US history: 9.5% nominal, 7.0% real per year.
- The authors think that bakes in an unusually fortunate US century, so they pull the mean toward the global historical experience.
- Preferred forecast: 8.0% nominal, 5.6% real, implying an equity risk premium of about 4.7% over cash. In their words, a premium “very close to what it always has been.”
Seems rosy. We’re not allowed to be this optimistic. Let’s get a second opinion. This one comes from the market itself as translated by Elm Wealth. Their capital markets assumptions, out this week, are implied from current bond yields and valuations (a cyclically adjusted earnings yield) instead of historical premiums.
[Whether CAPE is a more or less reliable forecasting tool is up for debate, but any attempt to forecast returns feels about as ill-fitting as using a vacuum to pull out a splinter. I’m in the camp that it’s a pointless exercise, while vols are more predictable and therefore a sounder basis for “know nothing” sizing, which I need because I know nothing.]
Elm reports as of September 30:
- US stocks: 2.92% real, 5.30% nominal
- Non-US stocks: 5.78% real, 8.15% nominal
- 10-year TIPS: 2.91% real
- US equity risk premium over TIPS: 0.01%
Where do Elm and the authors agree?
- Both take the rate and inflation pieces from market yields.
- Both lean away from projecting the US past forward. Ibbotson adjusts toward global history.
Where do they depart from each other?
- The equity premium. History says ~4.7% over cash. Today’s valuations say roughly zero over TIPS. Measured against the same TIPS yield, Ibbotson’s forecast is still ~2.7 points above it.
- Ibbotson does address valuation. The chapter flags P/E expansion as inflating the historical record and tests stripping it out, but that actually lowered the forecast less than the global adjustment did. In other words, using global historical valuation was more conservative.
- There’s some timing mismatch. Ibbotson uses the end-2025 curve while Elm’s publishing 9 months later when we know 10-year real yields are up over a full 100 bps.
Caveats both sides attach
- Elm: the risk premium is a poor predictor of near-term direction; momentum is positive and its risk indicator reads low.
- Ibbotson: a forecast is the center of a wide distribution, “not a guarantee.”
A lazy man’s framing
Ibbotson forecasts 5.7% real equity returns for a couple of decades. The CAPE method is close to 0. Split the difference, and you are close to the current 2.90% 10-year TIPS yield you can lock in now (for reference, Treasuries returned 1.9% real over the last 100 years.)
The market in general doesn’t appear to be especially frothy, but the risk-reward in bonds has gotten far more attractive with the latest surge in yields. If AI turns out to be deflationary and hurts employment at the same time that housing rolls over because the cost to own and finance has skyrocketed, then bonds will have looked like insurance policies with ex-ante positive carry. In English, a pretty sweet deal.
But I get it, it’s no spaceship outta the underclass.
It’s funny, when you learn about investing, you associate greed with bullishness. Turns out the textbooks have it exactly backwards in the context of our modern economic pathology psychology.