Saturday, February 28, 2009

The One Percenters

The "real Dow", i.e. nominal value divided by the CPI inflation index, was about 14.6 in October 1928 and is now at c. 33.5.

This means that, over the past 80 years and in real terms, the Dow has grown by a tiny shade over 1% per annum, compound.

True, there have also been dividends; but the "get rich quick on the market" idea seems to be a form of riverboat gambling, winners taking from losers.

The biggest winners being the fund managers - so very few of whom even manage to beat the index, long-term, in their own sectors.


sobers said...

I would like to see the same figures but with reinvestment of dividends. I suspect that would show a much rosier return over the same period.

Sackerson said...

Quite so, Sobers, provided the margin is not gobbled up by management fees, commissions and taxes. The good news is that if you buy at a reasonable price, and hold, you should have a dividend income that will last and keep pace with inflation (though you have to keep changing the mix to include the companies that arrive in the Index, and ditch those that fall out); the bad news is that it's not the quick way to riches. "Where are the customers' yachts?" as the man asked.