Personal Finance – Caffeinated

Jolting For More Jingle Jangle

Even “Experts” Are Misleading. Do your own research January 7, 2010

Filed under: Uncategorized — coffeecents @ 2:03 pm

Via Huffington Post here:

And the Cololmbia Jouralism Review here:

The anti-stock market crowd reacts in glee.  Apparently investing over the long term in the stock market doesn’t make one rich.

“Of course, that (like the WSJ’s 1929 to 2009 number) is measuring from a peak to a trough, which isn’t exactly fair. But even if you measure from the very nadir of the Depression-era Dow, which hit 651 in 1932 (in 2009 dollars. The nominal number was 41.22), you still end up with a real annual return of just 3.7 percent over the last seventy-seven years. You’re not going to get rich on those kind of returns”

I disagree

The CJR article reports a real rate of return (that’s when you strip out inflation) of 3.7%.  That means that over the long haul, if you left money amount X in the market, it would be worth 1.037X the next year.  You could BUY MORE STUFF.

You can’t get rich on 3.7% annualized average returns?  The implication is that you might as well stuff your mattress with greenbacks.

How decidedly foolish.

Unless you plan to be carried out rightly stiff from your work environment, you will need to save for the future.  If you have a long time horizon, the real rate of return from the general US stock market is higher than the real rate of return of savings accounts, money market accounts, and pretty much everything else I can think of (I am excluding foreign markets for simplicity, and really generalizing to make a point)

I’m betting the authors would scoff at the notion that a giving up a latte of day amounts to anything (in 30 years, inflation adjusted, invested in the market,average return, it amounts to 1 million dollars)

Lastly, they don’t even consider dividend reinvestment.

Key Takeaway : Run your own numbers.  You are your best investment advisor.


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