Do you worry about debt?

I said the S&P 500. And my statement still stands. Invest a dollar anytime during the 20th century, and 10 years later you will have made a gain (taxes and inflation notwithstanding) in the S&P even during the worst of times.

"mark (sixstringtheoryDOTcom)" wrote

Do you have a site that gives S&P data from about 1965 to 1982? I've searched and am having no luck.

Dow Jones data going back about a century tends to be more readily available.

The S&P 500 index was invented only in 1957. Evidently, for historical purposes some sources will extrapolate backwards, so maybe you have put your hands on something I can't turn up quickly.

I'm very skeptical of your claim, otherwise. It doesn't pass the common sense test, insofar as the Dow and S&P 500 correlate fairly well.

peaked at 384 in

&b=1&c28&d&e'&f 05&g=m> >

The S&P500 goes back only to 1957 and I couldn't find historical data for it. With what is available on Yahoo, if you compare the Dow and the S&P over that period, the Dow is actually ahead of the S&P. This is just an observation, not disagreeing with what was said.

Anoop

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Yes, but if you study the Fiscal Impbalance studies by Gokhale that he references all during his latest book, you'll see the challenge the US goverment has in addressing those challenges, and respond accordingly.

Mike

======================================= MODERATOR'S COMMENT: Possters are requested to remember that this is a financial planning newsgroup.

In December 1968, the S&P 500 reached a high of 109.37. In December 1978, it reached a high of 98.58.

-- Doug

Value of the S&P 500 index on November 25, 1968: 108.37 Value of the S&P 500 index on November 27, 1978: 96.28

?

The end points for the period between 1968-1982 essentially remained unchanged.

--Ram

"Douglas Johnson" >

What dividends were paid during that interval?

Elizabeth Richardson

I think I may disagree (respectfully ;)). For the most part it is correct, but there are exceptions. These exceptions seem to occur more often at times when pe ratios are higher than historical averages, and/or when dividend yields are historically below average.

This page makes the point about pe ratios and bull and bear markets very well. It also gives a easy understanding to the average duration of bull and bear cycles.

Regards, John

"Elizabeth Richardson" wrote

I was wondering about this too. The best I turned up quickly yesterday was the following:

"Historically, since World War II, dividend yields for the S&P 500 have ranged from a low of 2.63% (set in January 1994) to a high of 8.64%. Over the past 30 years, the average has been about 4%. Typically, a yield of 5% to 6% has represented an undervalued market, while a yield of 3% or less has an indicated an overvalued market."

General Electric's dividend yield was about 3% in 1976. Right now, GE's yield (2.45%) is higher than the S&P's (1.7%).

Since the average yield over the last 30 years has been about 4%, then assuming 4% for circa 1970s is likely erring on the low side.

With compounding from 1968-1978, we get an overall appreciation of about

1.48 ( = 1.04^10).

So maybe the first guy who mentioned a gain in any 10-year period for the S&P 500 is making a fair point.

The 10 years number sounds too short. But I believe you are incorrect in your reading of the Dow from '29 to '54, inasmuch as looking at the index alone doesn't show one the whole picture. Particularly back then - when dividends played a huge role in one's total return.

Nowadays, dividend yields are a lot lower, but if one included dividends in the return on the Dow from '29 forwards, one breaks even and comes out ahead quite a bit sooner than '54.

As is American household wealth. In fact, household savings is *growing* faster than both consumer debt *and* foreign investments in the US.

Per David Malpass's op-ed piece in the 3/28/05 WSJ:

Household net worth reached $48.5 *trillion* in 2004. Time deposits and savings reached $4.3 *trillion*. Credit card debt: $800 billion.

It's a very interesting piece and, unfortunately, the WSJ's website won't let one get at it without a subscription. But if you can get your hands on a copy, read it.

The total return on a TIPS includes inflation adjustments, plus a "real" interest rate. If interest rates go up, including that "real" rate, principal goes down. The principal on TIPS is protected from inflation if one holds to maturity. It is *not* protected from interest rate movements or lack of demand in the secondary market.

Here - read the sixth paragraph on this handy page:

I don't know specifically how the fidelity fund in question is performing, nor, necessarily, even which fund you actually mean), but the thing is that TIPS are not guaranteed to not lose money. (Except inasmuch as if one holds it directly and to maturity).

Note, too, that TIPS have some unfortunate tax treatment which makes their inflation protection less worthwhile outside of retirement accounts.

[snip]

This is why I have switched over from open-end index funds to ETFs. I don't want to be (because of paper gains in a proprietary index fund) "locked in" to staying at a particular brokerage.

Another advantage of ETFs (which they share with their pure closed-ended cousins) is that redemptions don't have the potential to cause capital gain distributions as redemptions of open-end funds can.

Dividends were high enough to result in a positive return. For calendar year data I think only 1928 and 1929 buyers had net losses from large-cap US stocks, ten years later.

But looking again at calendar years, there were 10-year losses about a dozen times since 1926, if you look at real returns. And if you're cashing out stocks to buy stuff and pay rent, real returns are probably more of interest.

Point being, there have been 10-year periods where stocks didn't do so hot. More important point: bonds had many more periods when they didn't do so hot. Most important point: the gain/loss limits shown by 80 years of history should never be considered the "worst case" of what might happen in the future. Or the best case, for that matter.

-Tad

Of course, there are a lot of ways to slice this data. You can go by raw indices, include dividends, taxes, inflation, transaction costs, and so forth.

Dividends do make a difference. This article discusses it:

"The 1920s bull market topped out on Sept. 7, 1929. If some late-arriving bull had invested money in the stock market on that day, how long would he have had to wait to get his money back? Using the price index, the answer would be September 1954, but on a total-return basis, this unluckiest of investors would have broken even in April 1945 -- nine years earlier"

Even so, that's 16 years before you break even. Total inflation over that period was only 5%.

Inflation is more interesting during the second period I cited: 1966-82. More from the Barron's article: "Between 1966 and 1982, when the Dow Jones Industrial Average struggled to move above 1000, consumer prices tripled. Adjusted for inflation, the DJIA declined by two thirds."

The Barron's article also addresses taxes. It is kind of long to quote here. Basically, taxes were low in the 20's and 30's, sky high in the 40's and 50's, then more moderate since.

-- Doug

The stock markets of Argentina and Ghana are doing quite well today. I'm not sure why you're holding these up as examples of how "markets eventually collapse and disappear".

-Will

Actually, Graham recommended not investing in securities selling over 20 times earnings. He also measured the valuation of the market by comparing the average S&P stock earnings power (the inverse of P/E) to the average yield on high-quality corporate bonds. Glancing at a yield chart, it looks like the average investment grade bond yield is about

4.5% right now, which Graham would take to mean that a fairly valued market would have a P/E of 22. This seems inline with the current market.

In my readings of Graham I have not come across this advice. Graham does say that he wants to see a continuous dividend history over many years, but historical raising of dividends did not appear to be important to his investing decisions.

-Will

Looking at the raw numbers are meaningless. The DJIA (like the SP500) are price-only indexes, not total return indexes. So saying it took

25 years to "return to that level" vastly overstates how long it took people to get even, since it ignores dividends.

It's also worth noting that the components of the Dow change periodically. Only one company, GE, has been in the Dow since is inception. As I recall, the most recent additions to the Dow were Microsoft and Intel. Does anyone remember which 2 companies they replaced? (And do I recall correctly?)

Elizabeth Richardson