A note to those who make historical economic comparisons

You don’t index the Stock Market to inflation because it’s not a commodity, like gas or oil. It’s a MARKET (or more accurately, a measure of the value of stocks). So instead, you look for grwoth patterns. Historically, the DOW has grown about 9% per year. In the last 8 years, it’s had NEGATIVE growth.

What that means is if you put $1000 in the market in 2000, and took it out now, you’d have about $990. Not only is the money you now have worth less because of inflation, you actually LOST MONEY over the 8 yr period. Not good. If you’d kept that $1000 under the mattress, you’d have… $1000. That’s not supposed to happen with a market that historically grows 9% per annum.

It’s true that you can pick an arbitrary date, but let’s go back even 10 years: In July of 1998, the DOW was at 8800. It just closed at 11288. That’s roughly 24% growth over 10 years. That’s still pretty bad. If the DOW grows 9% per year, it should double every 8 years or so. We SHOULD be well over 17,000 by now. Instead, you would have been better off putting your money in a 10 yr bond or even a long-term CD. Not exactly a ringing endorsement of the current market.

If you go back 15 years, the DOW performs better. In July of 1993, it was trading at 3539. From 1993, it’s had great growth, but here’s the problem:

Let’s suppose you’ve been working for 20 years. In the first 12 years of your job, you did very well. You got promotions and raises. Your salary grew from $30,000 to $75,000. But in the last 8 years, things haven’t been so good. You haven’t seen a raise in 8 yrs. You actually had to take a small pay cut. Now, there are two ways to look at this:
1. Man, my job rocks! I never thought I’d be making this much money after 20 years!
2. What the fuck? I’m working just as hard as I ever have and in the last EIGHT YEARS, I had to take a pay cut!

People get used to doing well because this is America, right? We’re supposed to keep growing, and making more money, and doing better. Eight years is a LONG time to not see your wages and investments grow AT ALL. THAT was Switch’s point, I believe.

Actually, you’d have much less than $1000 if you put it under your mattress.

Assuming 4% inflation over 8 years (compounded only once per year) you’d actually have the buying power of $631.43 at the end of 8 years, if you had put that money under the mattress.

However, if you had been smart and invested that money in the Asian or Russian stock markets you’d have significantly MORE!  In the Asian markets you would have about $3,758.86 and in the  Russian stock markets you’d have closer to $5,482.23.

Even in the American market (the DJIA, not the NYSE or S&P 500 or the other markets other posters fail to take notice of) you’d show a modest growth if you were in ANY mutual funds at all.  Maybe not the 9% you want to see, but you’d still have done better than you would have with a CD.

Mainly because if you had invested in 2000, you would have lost all your money in 2000 and 2001 and then built back up.  Since most people engage in dollar cost averaging, this would mean the vast majority of your money would have actually grown at a rate of 4.5-7.0% per annum with inflation hovering around 4%.

@Cmdr:

Actually, you’d have much less than $1000 if you put it under your mattress.

No, you would have $1000. 10 one hundreds, if you did it that way, or 50 twenties. That money doesn’t DISAPPEAR because of inflation, it’s buying power diminishes.

Assuming 4% inflation over 8 years (compounded only once per year) you’d actually have the buying power of $631.43 at the end of 8 years, if you had put that money under the mattress.

Right, and if you’d put it in the market (either tracking the S&P500, DJIA, NASDAQ or some combination of all three, as most people do), you’d have less than $631.  You wouldn’t even have your original thousand AND it would be worth less because of inflation.

However, if you had been smart and invested that money in the Asian or Russian stock markets you’d have significantly MORE!  In the Asian markets you would have about $3,758.86 and in the  Russian stock markets you’d have closer to $5,482.23.

Right, and if we’d all bought Google back in 2000, we’d be set for life. Unfortantely, we can’t go back in time and pick our investments, and the vast majority of investors have their money in broad market index funds (Vanguard, Fidelity, etc). And let’s not forget that when the S&P 500, DJIA, NASDAQ, etc. have negative growth for 8 years, that’s a MEASURE of the values of the companies that make up the market. When that measure falls or stagnates for a long time, as it has, that means major American companies (GM, Ford, Countrywide, etc.) are doing poorly. Probably a good reason why consumer confidence is at an all-time low.

Even in the American market (the DJIA, not the NYSE or S&P 500 or the other markets other posters fail to take notice of) you’d show a modest growth if you were in ANY mutual funds at all.  Maybe not the 9% you want to see, but you’d still have done better than you would have with a CD.

The DJIA has had NEGATIVE GROWTH. Not modest. NEGATIVE. The S&P 500 has had NEGATIVE growth since 2000. http://moneycentral.msn.com/investor/charts/chartdl.aspx?Symbol=%24INX&CP=0&PT=10

The NASDAQ has lost HALF it’s value since 2000. http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=nasdaq&sid=3291&o_symb=nasdaq&freq=2&time=13

You’re absolutely right: a mutual fund made up of Haliburton, Russian oil, Exxon, and Google has done phenomally well. It’s right up there with the winning numbers of the last PowerBall lottery. Great growth  :roll:

The millions of people who’ve invested in Vanguard’s S&P500 Index fund, haven’t been so lucky: 2.8% growth over 10 years
https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT

Mainly because if you had invested in 2000, you would have lost all your money in 2000 and 2001 and then built back up.  Since most people engage in dollar cost averaging, this would mean the vast majority of your money would have actually grown at a rate of 4.5-7.0% per annum with inflation hovering around 4%.

If you had invested in any of the major domestic indexes, in 2000, you would have LESS MONEY TODAY. Not less BUYING POWER. LESS MONEY. Let’s say that again: LESS MONEY. That is what a NEGATIVE RETURN means. It doesn’t matter if it grew 10% one day in 2005 and fell 15% the next. Over 8 years, through all the ups and downs, you now have LESS MONEY.

You know, you’re really not worth the trouble. The thought of you teaching is a little unnerving, but who am I to try to straighten you out. If you want to go through life clueless, go right ahead.

@Smacktard:

You know, you’re really not worth the trouble. The thought of you teaching is a little unnerving, but who am I to try to straighten you out. If you want to go through life clueless, go right ahead.

Wow, what is this all about?

Enjoyed most of the thread, learned a bit about the market I think. Just didn’t understand the last point?

@JWW:

@Smacktard:

You know, you’re really not worth the trouble. The thought of you teaching is a little unnerving, but who am I to try to straighten you out. If you want to go through life clueless, go right ahead.

Wow, what is this all about?

Enjoyed most of the thread, learned a bit about the market I think. Just didn’t understand the last point?

Then you haven’t conversed with Jen enough.  no offense, Jen

@Jermofoot:

@JWW:

@Smacktard:

You know, you’re really not worth the trouble. The thought of you teaching is a little unnerving, but who am I to try to straighten you out. If you want to go through life clueless, go right ahead.

Wow, what is this all about?

Enjoyed most of the thread, learned a bit about the market I think. Just didn’t understand the last point?

Then you haven’t conversed with Jen enough.  no offense, Jen

OH. Didn’t notice anything nasty in this thread must have been carry over from another thread?

@JWW:

@Jermofoot:

@JWW:

@Smacktard:

You know, you’re really not worth the trouble. The thought of you teaching is a little unnerving, but who am I to try to straighten you out. If you want to go through life clueless, go right ahead.

Wow, what is this all about?

Enjoyed most of the thread, learned a bit about the market I think. Just didn’t understand the last point?

Then you haven’t conversed with Jen enough.  no offense, Jen

OH. Didn’t notice anything nasty in this thread must have been carry over from another thread?

I don’t know about nasty, but Jenn is quite the conversationalist and debater.  It gets…interesting sometimes when you argue.  She’s like a 9/11 truther for all of reality.  :lol:

Which is to say she’s a lot of fun to talk with but you never know what crazy thing she’s going to say.  :mrgreen:

Yea, crazy things like actually MAKING money in the market regardless of how poorly some people are doing at it.  Just because the DJIA goes up 20,000 points in a day or drops 20,000 points in a day does not mean you made or lost any money.

As for what I track, I let MorningStar do a lot of my tracking for me.  They seem to have a slightly better tracking system then the posters on this board.  Dunno…maybe it’s the thousands of years of experience their staffers have combined vs the decade or so we have?  Anyway, MorningStar’s getting me almost 23% per annum while some of you are complaining you have been losing money since the Y2K scam was revealed back in January of 2000.

Anyway, back on topic, inflation is lost money.  While you still have the same physical bank notes, are you really going to try and tell me you have the same amount of money if you had $5 USD in 1908 as you would if you had $5 USD in 2008?  Hell frakking no.  Sure, it’s still $5 USD, but $5 USD in 1908 was MUCH more valuable then, than it is today!  $5 USD today won’t even get you a value meal at McDonalds, back in 1908 you could probably get enough groceries to live for a month on $5 USD.

Hmm, Morningstar’s top 10-yr fund (ING Russia A) has grown 30%. About 3% per year.
http://screen.morningstar.com/FundSearch/FundRank.html?fundCategory=all&screen=tr10yr

Their top 5 yr fund (BlackRock Latin America A) has gotten 45% (About 9% per year).
http://screen.morningstar.com/FundSearch/FundRank.html

Their top 3 yr fund (ING Russia A) has gotten 46% (15% per year).
http://screen.morningstar.com/FundSearch/FundRank.html

Your claim that MorningStar is getting you 23% a year is either bullshit or wishful thinking. If you’re getting 23% a year, quit teaching, and apply to Goldman Sachs because you’re outperforming everbody except the top hedge-fund managers. To highlight the ridiculousness of what you’re saying, we have:

Barron’s #7 ranked Hedge-fund IN THE WORLD (Atticus Management, 2007 Return: 27.86%)
Barrons’ #11 ranked Hedge-Fund in the world (Blackhorse Emerging Enterprises Fund, 2007 Return: 26.16%)

Jen: 23%

Your theory that Lee deliberately wrecked his army was at least INTELLECTUALLY dishonest. This is just dishonest. Did you really think anyone would believe you?

@Cmdr:

Yea, crazy things like actually MAKING money in the market regardless of how poorly some people are doing at it.  Just because the DJIA goes up 20,000 points in a day or drops 20,000 points in a day does not mean you made or lost any money.

As for what I track, I let MorningStar do a lot of my tracking for me.  They seem to have a slightly better tracking system then the posters on this board.  Dunno…maybe it’s the thousands of years of experience their staffers have combined vs the decade or so we have?  Anyway, MorningStar’s getting me almost 23% per annum while some of you are complaining you have been losing money since the Y2K scam was revealed back in January of 2000.

Anyway, back on topic, inflation is lost money.  While you still have the same physical bank notes, are you really going to try and tell me you have the same amount of money if you had $5 USD in 1908 as you would if you had $5 USD in 2008?  Hell frakking no.  Sure, it’s still $5 USD, but $5 USD in 1908 was MUCH more valuable then, than it is today!  $5 USD today won’t even get you a value meal at McDonalds, back in 1908 you could probably get enough groceries to live for a month on $5 USD.

Did I mention she’s also relentless?  :-D

To the original post…

EM actually has it BACKWARD in his original post IF you were to apply CPI adjustments to the DJIA.

Since we are not, and have not been, in a period of DEflation, then a market value of 10000 points in 2000 would actually be more purchasing power than a market of 10000 is today, since over the past 8 years we have average about 3% per year annual inflation (or about 27% total inflation over 8 years figuring the cumulative effects).

Remember Stocks are an asset for most folks, and at the same face value inflation reduces the value of assets.

So…
If we were to adjust the DJIA for inflation, then we would need a 27% INCREASE in the DJIA since 2000 for the purchasing power of the assets represented by the DJIA shares just in order to stay even.  Since we actually have about a 4% total face value decline over those same 8ish years, the true purchasing power of those shares if converted to cash has actually decreased by about a third…

Sorry EM, I was avoiding this thread as long as possible, but did have to do the correction when I saw it.

Oh, one final comment on the DJIA…

The past 8ish years:  DJIA is down about 4%
The previous 8ish years, the DJIA TRIPLED in value

I’ll let everyone decide how they want to evaluate that; but I do of course have my own opinions on it (unfortunately they are political and relate to true Fiscal Conservatives controlling Congress and a President more concerned with Fracking his interns instead of Fracking the rest of us)