Stocks, Bonds, Bills, and Inflation 2017

What this book actually teaches

The Stocks, Bonds, Bills, and Inflation (SBBI) 2017 Yearbook, produced by Roger Ibbotson and his team at Morningstar, is not a book with an argument so much as an annual statistical reference — arguably the single most cited dataset in institutional asset allocation and capital markets research. Its core function is to compile historical return data for U.S. asset classes going back to 1926, providing the long-run empirical foundation for statements about equity risk premiums, asset class correlations, and the real (inflation-adjusted) returns available to investors across market cycles.

The data the SBBI presents covers five primary series: large-cap U.S. stocks (proxied by the S&P 500 and predecessors), small-cap stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills (the risk-free rate proxy), and the Consumer Price Index for inflation. These series are updated annually with one more year of data while maintaining the full historical record, making the yearbook a running chronicle rather than a static document. The 2017 edition adds 2016 to the record and updates the compound annual growth rates, standard deviations, and rolling period statistics that users of the data rely on for capital markets assumptions.

The SBBI dataset is foundational to several important investment practices. The equity risk premium — the historical return premium of stocks over the risk-free rate — is central to discounted cash flow valuation, cost of capital estimation for corporate finance, and portfolio construction theory. The data is also the empirical backbone of much of what practitioners cite when discussing the long-run case for equity investing. Ibbotson's contribution was to recognize in the 1970s that no single comprehensive dataset of this kind existed and to compile one; the yearbook has been updated annually since 1977.

For working practitioners, the most useful portions of the yearbook are the summary statistics tables: compound annual returns, arithmetic mean returns (which differ meaningfully for assets with high return volatility), standard deviations, and year-by-year return series that allow users to construct custom analysis periods. The differentiation between arithmetic and geometric (compound) returns is an important methodological point the yearbook handles carefully — a distinction that matters significantly when estimating forward-looking capital markets assumptions from historical data.

The limitations are inherent in the product's nature rather than failures of execution. As a reference compendium rather than a narrative work, the SBBI yearbook requires active use — readers need to arrive with specific analytical questions. The reliance on U.S.-only data means the picture it presents of historical asset class returns may not generalize to global markets or future periods with different macro conditions. Some critics also note that the 1926 start date captures a specific historical period that may not be representative of equilibrium long-run returns.

For institutional investment practitioners, finance academics, and advanced individual investors who use historical capital markets data in asset allocation decisions, performance attribution, or valuation work, the SBBI yearbook is an essential reference. It is a professional tool, not a read-through text.

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About Roger Ibbotson

Read more from Roger Ibbotson and explore the full bibliography on ClearValue Books.