# Expected annual return calculators

## S & P 500 calculator

#### What & How

Starting from:

- what can you expect – long term – from various assets or market indices / ETFs – see post here
- what do I estimate as a correct price level – see post here

I combined these two to make the calculators below. The formulas built into the calculators are not difficult. For example, the S & P 500 index:

- my estimate fair price level (end of 2018) is 2200 – see post here
- the historical growth rate is 8.7 % – see post here
- which means that a fair price level for the S & P 500 in 5 years will be 2200 x (1.087)
^{ 5}= 3339

From that number, you can easily calculate back the annual returns over a 5 – year period starting from any given number.

- For instance, starting from 2600 today, you get a return of (3335 / 2600)
^{1 / 5 }– 1 = 5.1 % annually. That is a Total Return (including reinvested dividends and excluding inflation adjustment and excluding any expenses and taxes). - Simple test: what is the expected annual return for a starting index of 2200?
- (3335 / 2200)
^{1 / 5 }– 1 = 8.7 % annually. Duh! which was to be expected, since we start from the ‘fair index level’ 2200 we can also expect the average annual return of 8.7 %.

The other calculators apply the same simple logic.

I do not pretend that the outcome is exact, nor that I predict the future. But they are useful to have an indication of what can be expected. When the S&P 500 goes to 2940, as it went in August 2018, the calulator says that your returns will be 3% dividend included. When the market goes to 2346 as in December 2018, the calculator says 7 % annually. It gives you a good indication when to move more savings into an ETF and when preferably not to add money.

Hi. Thanks for the calculators. Can you link the source?

Thanks for the feedback zoli. I have added an introduction which explains the sources and the formula used.

thanks