100 Years of Investing: Why Long-Term Thinking Wins

By Justin May, Portfolio Manager

2026 marks 100 years of the S&P 500. The index has returned over 10% annually for the past 100 years; $1 invested on 1/1/26 would be worth over $26,000 today. That’s despite the great depression, two world wars, oil crises, the dot-com bubble burst, the 2008 financial crisis, and the COVID pandemic. 100 years of data asserts that investors are rewarded when they stay in their seats during times of panic.

But let’s zoom out further than 100 years. Way further.

The longest-running economic dataset I could find is for the UK’s annual GDP (Gross Domestic Product), a measure of a country’s economic output. The data spans 770 years, from 1252-2022. The graph below has a vertical red line for every year there is a recession, defined as a year when GDP was less than the previous year.

Chart showing recession years in the UK from 1252 to 2022, illustrating that recessions have become less frequent over the past two centuries.

The trend is clear: recessions were commonplace until around 1800, and since then they’ve been on the decline. From 1252 until 1800, nearly half of all years involved a recession. From 1800 to the present, recessions happen about once every 4 years. In the past 60 years, it’s closer to 1 in 10 years.

I’ll offer two possible explanations for this trend: one optimistic, and one more cynical.

An optimist would point to advancements in technology over the last 100 years. When the S&P 500 debuted 100 years ago, the average person didn’t own a car, or a telephone. Now we have computers in our pockets connected to the internet. Jobs that used to require 50 people are accomplished with one person and a computer. We’ve cured polio and treated pneumonia, diseases that used to wipe out entire cities. Maybe in the same way, we’ve engineered ourselves out of the recession cycle. We’ve learned from each past recession, and now faster information, central banks, government regulation and assistance, and a more diverse economy will continue to make recessions obsolete. Our last recession during COVID lasted just two months, the shortest in U.S. history.

A skeptic would point out that the absence of recessions, especially post-WW2, coincides with the rise of government debt financing being used not only as a tool for financing wars, but also for avoiding recessions. When a recession begins in the U.S., the government pumps money into the economy to avoid disaster. But for 60 years those debts haven’t been repaid, and continually we borrow more. From 2007-2011, government debt grew by 65%; in 2020 it grew by 18%. It stands today at over 120% of GDP. We’ve financed an unusually stable economy with low tax rates. This ecosystem has fostered incredible innovation, but such synthetic stability encourages speculation. Growth expectations are high. With so much debt, how many more recessions can we buy ourselves out of?

As an investor, my takeaway is this: recessions will inevitably happen. Maybe they’ll be rare in the future, maybe frequent. Regardless, they will be unpredictable, and there’s no use trying to time the market in anticipation of one. Keep some assets safe – in cash or bonds – as a source of funds when the unexpected happens.

1. The S&P Composite Index was launched in 1926, which became the S&P 500 Index in 1957.