Trailing Total Returns for Gold 1971 - 2022
Comparing 5 Year, 10 Year, and 20 Year Trailing Total Returns over time
( Chart made with Flourish: https://public.flourish.studio/visualisation/11433655/ )
The chart you’re looking at above shows trailing returns, meaning the total return for the past 5, 10, and 20 years up to that point in time on the chart. So all periods start just above 0% in August of 1971, when the price of gold began to “float freely”. So that point in time shows that if you had bought gold 5, 10, or 20 years prior to that date, the total return you would have made would have been just a hair above break even.
Each successive month looks back 5, 10, and 20 years to show how those returns changed over time. The best 5 year return in gold was the period starting December 1969 and ending December 1974 at about a 422% total return. The next best 5 year return was from September 1975 to September 1980 at about a 367% return. You can see these high points at the end date on the animated chart above.
So each point is looking back by 5 years (blue), 10 years (yellow), and 20 years (green) respectively. By far the best 10 and 20 year returns were in 1980. By January, you were sitting on a 1830% 10 year total return, and a 1822% 20 year total return. The reason they are so similar is that prior to 1971, the price of gold barely budged, so the starting price is basically the same. It’s also the reason why they move together for the first 10 years, then decouple and go their separate ways from there.
The worst total returns you saw over a 5 year period were: Sept 1980 - 85 (-52%), Dec 1987 - 92 (-31%), Feb 1996 - 2001 (-35%), and Dec 2011 - 16 (-30%).
The worst 10 year total returns were: July 1980 - 90 (-44%), and Dec 1987 - 97 (-41%).
The worst 20 year total returns was: Sept 1980 - 2000 (-59%).
So the whole point of this chart is to show the range of returns over these time periods so you have an idea of potential worst case, and best case scenarios.
It’s no surprise that the worst returns for all time periods are clustered around the 20 year bear market in gold from about 1980 - 2000. The only standout is the 5 year period from 2011 - 2016 when gold dropped back from about $1,900/oz to as low as about $1,050. These absolute high and low points aren’t fully captured in monthly data, but pretty close. If you were unlucky enough to buy gold right at $1,900, then after 5 years, you would have briefly been sitting on a loss of about 45%.
It’s a little surprising that the worst 10 and 20 year returns are actually worse than the worst 5 year returns. That’s a little counterintuitive. You would think that the longer you hold something, the less the volatility of returns would be. The thing to keep in mind is that these are total returns, not annual returns. If you annualize them, then it flips, but that’s another chart for another day.
The lesson here is that since people often think in terms of total returns, instead of annual returns, it helps to see what those returns have looked like over time. Then you can get a better sense of what the best, and worst case scenarios could be in the future. It’s especially helpful to know what the worst case scenario could be because knowing the potential downside is critical for risk management.
Think of it this way; what if you bought gold and after 5 years, you were down about 33%. How much of your net worth could you have in gold and still be okay with that? What about after 10 years, or 20? If you had 10% of your net worth in an asset that was still showing a negative return after 20 years, how much of a problem would that create for you? What about 20% of your net worth? What about 5%? Once you have a solid answer to those questions, and you find a number that still works, you’ve started winning the battle before you fight it.
Next in this series will be a look at annualized returns, and how averaging in over time can lower the volatility of those returns.