The Best and Worst Years to Be Born (from an investing perspective)

I was recently having a conversation with a colleague about how luck played an important role in overall investment returns. I pointed out that someone born in the 1980's has basically spent more than 75% of his/her life in a raging bull market for stocks, whereas someone born in the late 1920's would have lived through roughly a quarter century of poor returns before his/her portfolio would have begun to compound. We did not necessarily disagree on the idea of luck playing a role, but we did wonder what the data would bear our. Which brings us to a fun exercise: what would have been the best and worst years to be born from an investing perspective. Here are the ground rules:

• We assume everyone invested $10,000 at the beginning of the year he/she was born – we will assume their parents had a lot of foresight;
• Everyone lets his/her $10k ride – no adding or subtracting from the initial investment;
• Everyone gets to invest for a maximum of 75-years;
• We cut it off at those born in the year 2000;
• We compare compounded annual growth rates with no dividends;
• We use the S&P 500 in US dollars and go back 100-years.

From the above, we have 81-years of data to work with. Of these 81-years, 26 have completed the 75-year loop. In order to adjust for this, we will look at some comparisons later in this piece.

Okay, with that in mind, here is a chart of the top 20 years to have been born based on a comparison of compounded returns:

Perhaps not surprisingly, the entirety of the top 10 is populated by folks born in the 1970’s and 1980’s. In fact, we have to go all the way to #20 to find someone born outside of the 1970s, 80s and 90s with one of the first of the Boomers (1949) cracking the top 20. None of the top 20 has yet to reach 75, and our clubhouse leader currently for those who have reached 75 is those folks born in 1943, who would have had $2.8mn as they reached the 75-year threshold. With that in mind, let’s look at a chart of all those who reached 75:

What is fascinating (at least to me) is the disparity from year to year – someone born in 1937, for example, ends up with ~$730k whereas someone born in 1938 ends up with ~$1.3mn.

Okay, now let’s shift gears and look at the 20 worst years to have been born:

Not surprisingly, it was bad to be born in the 1920s and 1930s, but there is also some bad timing for those born in the late 1990’s. Those born in 2000 have the distinction of the worst lifetime return (despite the last 10-years); although, they have ~55-years left to narrow the gap.

Okay, let’s change gears again and instead focus on “Prime Earnings Years”. Instead of imagining that we put in $10k at birth, let’s instead imagine that we invested at the beginning of our age 30 year and kept it invested until age 60. Let’s look at our top 20 (note that for those who have reached 30, but not 60, we simply take the current value as the end point, further, we stop at those born in 1980):

With the exception of those born in 1979 and 1980, who are basically a decade into their prime saving years (began right as the Financial Crisis was ending), the big winners are those born between 1940 and 1960. Conversely, here are our big losers:

Here, those born from 1969 to 1971 come off the worst (I was born in 1971, so there's that). Okay, here are all the folks who have reached 60 (i.e. completed their prime earning years):

So, someone born in 1945 vs. 1926, would have enjoyed nearly double the CAGR during his/her prime saving years. To put that in perspective, on a $10,000 investment at age 30, it would be the difference between ~$43k at age 60 and ~$175k at age 60.

It is actually interesting to look at our 1926 birth, as they essentially make half of their money during their prime years in the last 40-months:

Okay, before we wind this down, let's look at one more neat chart. Here, we will pull together the lifetime returns of all years and build a pyramid of sorts that groups years be returns and color-codes them to give a better sense of disbursement:

 

Bottom Line: If you were born from 1975 to 1985 - congratulations - you are winning the investment lottery; although, we are assuming that your parents had the foresight to put some money into the market for you right at the start. Conversely, those born right as the century was turning, you are off to a bad start, but take comfort in a long investment horizon ahead to make up the difference. As for those born in 1943 - you walk in rarified air and you should be buying all of those born in other years (especially 1926'ers) a stiff drink.