Posted almost 5 years ago

Are Your Friends Still Waiting For 10% Returns in The Stock Market?

You’ve no doubt heard over and over the Dow Jones Industrial Average (DJIA) has a compound long term growth rate of 10% per year. This is simply not true! 

*  On January 3, 1900, the DJIA closed at 68. November 28, 2012, the DJIA
    closed at 12,985.

*  The compound rate of growth over 112 years is 4.80%. The DJIA compound
    annual growth rate was below 4.80% in 7 of the past 11 decades.

*  Each bull market was followed by a bear or “sideways” market that lasted

A couple of observations and thoughts:

*  Timing the stock market is a reasonable and necessary strategy to create a
    real positive rate of return (remember - inflation has averaged 3% a year
    since 1900.)

*  You should update your retirement plan if you are using a 10% growth
    rate, especially if you hope to retire within the next 10 - 15 years.

  • *  Given the history of bear markets following a bull, now is a good time to
        consider alternative investments like income producing property (IncP.)

  • The DJIA closing data in the first chart was collected from Yahoo Finance and checked against several sources for accuracy.  Note, I assumed dividends and income are offset by broker, fund management and other fees. The second chart is from Rydex|SGI (Guggenheim Investments.)

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