The New York Stock Exchange was formed in 1792 with the Buttonwood Agreement. There were only 30 stocks and bonds traded on a daily basis. By the end of the Civil War the number was up to 300. The stock ticker was introduced in 1867 allowing market information to be transmitted across the US. 1878 saw the introduction of the telephone and trading became even more efficient. An automated quotation system was not introduced until 1960.
According to the first NYSE census of stock ownership, only 4.2% of Americans owned stock in 1952 and even though mutual funds were introduced in 1924, under 6% of American households held money in these funds in 1980.
The S&P 500 index was started in 1957 and the first mutual fund based on this index was introduced by Vanguard in 1976. This popular index also formed the basis for the launch of the first Exchange Traded Fund (ETF) in 1993 with the ticker SPY. Now this ETF is one of the largest and most heavily traded ETFs in the world. There were 3 bond only mutual funds in 1965 and the first bond ETF was not introduced until 2002.
What can we learn from this historical perspective? Investing today is quite different from 40 years ago. The stock market may have been around for over 200 years, but you could not easily invest in it until the past 40 years. To quote historical returns for longer than this makes no sense.
I believe the next 30 years will be quite different from the past 30 years and using long-term past history to guide current asset allocation could be dangerous. 10 years is the longest time horizon I look at.
