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I was listening to a podcast the other day - I believe it was from Bloomberg - they had a gentleman on speaking about the stock market and the current economic situation. He mentioned that he had jumped into the market in 1982, and that at that time the index was 970. His argument was that the market is about patience and long-term growth. Given that, I decided to crunch his numbers;

Future Value = Today's Index = 10,000
Present Value = 1982 Index = 970
P = Period = 2010-1982 = 28
Compounded Interest Rate = i

FV = PV(1+i)^P
i = (FV/PV)^(1/P)-1
i = 8.69%

In the past, I hadn't had any figures to run the numbers and was therefore ignorant to the actual growth of this economic indicator. Very interesting, especially given the fact that an entire decade of growth was recently lost.

Does anybody have any figures dating further back? Can anybody summarize rationalization for this growth? What is different today? What is similar today?
 

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Although if you factor in real returns on those numbers, they appear much more modest:
The Bank of Canada inflation calculator over that time period reveals:

A "basket" of goods and
services that cost: $ 970 in 1982
...would cost: $ 2069 in 2010

Average Annual Rate of Inflation/ % : 2.74%

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The 8.69% you calculated - 2.74% inflation adjustment leaves: 5.95% inflation-adjusted

Comparing with bonds over the same period:
There is an 8.63% gain per year over the interval in my calculator, inflation adjusted is: 5.89%.

For 0.06% more in the market, one would probably get a lot more sleep over 20 years being invested in bonds eh? :cool:
 

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And have not accounted for the YOY loss of the MER for those who have indexed funds.

And inflation as noted.

Accounting for dividends would have probably helped the argument that 'the market is about patience and long-term growth'.
 

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Let's say dividends about offset that 2.74% inflation and say 0.4% in MER. Then we get a ~8.5% real return. Also, that return is taxed at half the rate of interest on a bond, and so it's equivalent to a bond yield of upwards of 12% after tax.
 

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And have not accounted for the YOY loss of the MER for those who have indexed funds.

And inflation as noted.

Accounting for dividends would have probably helped the argument that 'the market is about patience and long-term growth'.
well, if we are comparing stocks and bonds, then the MER for bond funds do cancel out the MERs for index funds. arguably, one could manage funds more safely than one could manage stocks trying to mimic the index...
 

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Let's say dividends about offset that 2.74% inflation and say 0.4% in MER. Then we get a ~8.5% real return. Also, that return is taxed at half the rate of interest on a bond, and so it's equivalent to a bond yield of upwards of 12% after tax.
are capital gains in bonds not treated similar to capital gains in stocks? unless you are considering holding on to the bonds till maturity, they are both the same i guess.
 

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All the interest amount is taxable as normal. I'm not sure what you mean by capital gains on bonds. If you're holding a portfolio with a fixed duration, any capital gain over that time would have been due to the fall in yields over time. Yields aint heading any lower, and that will be a drag on bond returns going forward, compared to historical returns over the past few decades.
 

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One also has to take into account the gut-wrenching market drops that come along from time to time.

For example, the broad U.S. stock market has fallen by MORE THAN 50%!!! twice since early 2000!!!:( and currently stands almost exactly where it was 12 years ago.:mad:

The next 50% drop in the markets is lurking out there somewhere and will come along sooner or later and so investors have to be prepared for when it happens.

At least indexes don't go down by that much and stay that way for years like some individual stocks do.

However, some European and Japanese indexes have also performed terribly over the past several years.

On the other hand, had you invested in the Indonesian index, you would have gained 461% over the past decade, Argentina up 421%, and South Korea up 132%!!:cool:

Income guru Bill Gross predicts that U.S. interest rates will rise for the next 20 years due to higher interest rates and inflation which will drive down bond prices. There is much concern out there over the monies that have moved out of equities and into the perceived safety of bonds.

Being safe will not make you any money in today's world!!

Investors employing the standard mix of around 60% stocks and 40% bonds will be stuck with returns in the 5% range for years to come.

The PowerShares FTSE RAFI US 1000 ETF has an expense ratio of 0.35% and has delivered returns of 4.3% a year through tumultuous markets, beating the S&P 500 by 2.4 percentage points annually.

Also, someone with an average risk tolerance should have 5% to 10% of their portfolio in an emerging markets ETF such as the Vanguard Emerging Markets Stock Index ETF.

Source: Fortune Magazine, June 14, 2010
 

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Being safe will not make you any money in today's world!!

Investors employing the standard mix of around 60% stocks and 40% bonds will be stuck with returns in the 5% range for years to come.

The PowerShares FTSE RAFI US 1000 ETF has an expense ratio of 0.35% and has delivered returns of 4.3% a year through tumultuous markets, beating the S&P 500 by 2.4 percentage points annually.

Also, someone with an average risk tolerance should have 5% to 10% of their portfolio in an emerging markets ETF such as the Vanguard Emerging Markets Stock Index ETF.

Source: Fortune Magazine, June 14, 2010
So essentially what your esteemed Fortune Magazine is saying on June 14, 2010 is that they are just as clueless as you and I on what's going to happen in the future.
I don't see how their strategy of diversifying across the US 1000 and the international index is particularly enligtening.
The 4.3% (before inflation adjustment) return from the PowerShares FTSE RAFI US 1000 ETF is nothing to write home about.
A ladder or high quality corporate bonds could have easily delivered the same, if not better.
The XIU has a much healthier 10 year return.

And the usual recommendation of 60% equity and 40% bonds is about asset allocation, not geographical distribution.
You may or may not agree with the %, and there certainly are folks that are on the extreme i.e. 100% equity or 100% bonds.
In the past such a strategy would have delivered much better than 5% return.
I don't see any compelling argument in that Fortune magazine quote on why they think it will not continue to deliver similar results.
 

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Sample core US equity one year returns as of March 31, 2010:

S&P 500 Index: 49.73%
PowerShares FTSE RAFI US 1000 Portfolio ETF: 79.02%

Russell 2000 Index: 62.76%
PowerShares FTSE RAFI US Small-Mid Portfolio ETF: 104.61%

One year does not a complete story tell but the comparison is still interesting.

Can someone tell me how the Vanguard Total Stock Market ETF (VTI) performed over the same 12 month period?
 

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Sample core US equity one year returns as of March 31, 2010:

S&P 500 Index: 49.73%
PowerShares FTSE RAFI US 1000 Portfolio ETF: 79.02%

Russell 2000 Index: 62.76%
PowerShares FTSE RAFI US Small-Mid Portfolio ETF: 104.61%

One year does not a complete story tell but the comparison is still interesting.

Can someone tell me how the Vanguard Total Stock Market ETF (VTI) performed over the same 12 month period?
60.2 % March 2nd, 2009 to end of February, 2010. Very good BG
 
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