I've always hear the market returns 10% / year and because of that I have investments that are long the market, but someone brought to my attention that this might not always be true. 1920 the DJIA was @ 110. The year is 2008, so that is 88 years. The rule of 70 is you take 70 / interest rate and you'll get the number of years it'll take for your money to double. So in this case you're money will double 12.5 times. 1) 100 2) 200 3) 400 4) 800 5) 1600 6) 3200 7) 6400 9) 12800 10) 25600 11) 50200 12) 100400 we're not anywhere close to DOW 100400!! We've actually only doubled 9 times, so if you solve for interest rate you get 7.7% so is the expected return really only 7.7%??
compounding & new math - chism-bopp I think, they teach in in the far east. its all bat-shit clazy to me.
Simply put, yes. I did a calculation for the S&P 500 from Jan 1950 until now and came to 8.02% annualized, although this is ex dividend
8% is more accurate. Propagandists use the time frame from the 1982 bottom on forward to generate a "better" number. It also goes to show that if you can consistently compound a few extra points above average, the end result is astounding.
You can't just use the stated index numbers to calculate long term returns. The 10% a year long term stock market return is a total return number that includes reinvested dividends. For the majority of the 20th century half of the annual return came from dividends.
You left out dividends which is huge. Especially when you compound those dividends over 88 years. Try your math again.
How the indexes advance is the definition of standing still, roughly speaking. The market opertaes in RTH and it is idle otherwise for trading purposes. Break out these two periods of the day into two parts. when you do you will see that the RTH part is net negative and the onRTH are where the long term advances in value have occurred in the sum of the two parts. As the world rotates, things happen, slowly. Being long, in the buy and hold sense, gets you to nowhere, you are simply maintaining your buying power. This is simply the stepping off point for making money. traditionally people have invested for one of three things, so the advertizing used to say: security, income or growth. Caveats were assigned to each to get a person through life and make it posible to have a balanced portfolio. Rebalancing was done at the worst time on the basis of client pain levels. Now we all have tools. The value posted for a year is an easy three day's trading when position trading. In the "50's doing such raised eyebrows. Today it is common place and can give a person 80 to 100 turns a year @ 10% per turn. One turn per year of the 80 to 100 pays for the standing still part. It is possible to conclude that how much maony you start with doesn't matter, since in a while you will become rich. That is how it turns out regarddless of bull or bear markets.
Add and compound the dividends, but subtract inflation. After you back inflation out, at an average of approximately 3% per year, I believe the real return still comes out to be somewhere between 6 and 7%.
6-7% is the historical return for stocks- just slightly ahead of inflation. The problem is stocks can underperform inflation for many years where you would make more money in a savings account. Then suddenly stocks surge and you;re making 10-15% a year.