Posts Tagged ‘investing’

Realistic historical return of the Dow Jones

January 29, 2008

Though stock markets around the world have crashed, many will argue that the historical return of the DJIA is pretty good and we shouldn’t worry about one bad year. But they compute the average annual return for a far longer period than most investors will actually invest in the market. That is, computing the average over 50 years is silly since most investors are only invested for 10 or 20 years. The chart below shows the average annual return if you had bought and held the DJIA for 10 or 20 years. So if you bought it 20 years ago and sold this month, your annual return would be 9.5%. The chart demonstrates that those who sold in the 70s and 80s would have seen less than a 5% annual return. Factor in the ridiculous inflation rate and they actually lost money. So the very long-term historical return is meaningless. Instead, we are hoping to be in a lucky 10 or 20 year period of phenomenal growth like the 90s. 

DJIA Historical Return


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