Evidence That You Can Get Rich Through Stock Investing By Shawn Allen, CFA, CMA, MBA, P.Eng. President, InvestorsFriend Inc. 12/21/2013 12/21/2013
Growth of $1000 Return 10 years 20 years 30 years 40 years 50 years -2.0% 817 668 545 446 364 0.0% 1,000 1,000 1,000 1,000 1,000 2.0% 1,219 1,486 1,811 2,208 2,692 4.0% 1,480 2,191 3,243 4,801 7,107 6.0% 1,791 3,207 5,743 10,286 18,420 8.0% 2,159 4,661 10,063 21,725 46,902 10.0% 2,594 6,727 17,449 45,259 117,391 12.0% 3,106 9,646 29,960 93,051 289,002 14.0% 3,707 13,743 50,950 188,884 700,233 12/21/2013 12/21/2013
Growth of $6000 per year Return 10 years 20 years 30 years 40 years 50 years -2.0% 54,878 99,718 136,355 166,290 190,749 0.0% 60,000 120,000 180,000 240,000 300,000 2.0% 65,698 145,784 243,408 362,412 507,476 4.0% 72,037 178,668 336,510 570,153 916,003 6.0% 79,085 220,714 474,349 928,572 1,742,015 8.0% 679,699 1,554,339 3,442,621 86,919 274,572 10.0% 95,625 343,650 986,964 2,655,555 6,983,451 12.0% 105,292 432,315 1,447,996 4,602,549 14,400,109 14.0% 116,024 546,150 2,140,721 8,052,151 29,967,128 12/21/2013 12/21/2013
Stocks, Bonds, Bills, Gold and Inflation Historic Real (After Inflation) Returns 12/21/2013 12/21/2013
Total Real Returns, Large Stocks, Long Treasuries, T-Bills, The Dollar and Gold 1926 - 2011 $350 $300 Large Stocks $250 Long Treasury Bonds $200 T-Bills The Dollar $150 Gold $100 $50 $0 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 12/21/2013 12/21/2013
Total Real Returns, Large Stocks, Long Treasuries, T-Bills, The Dollar and Gold 1926 - 2011 1,000.0 100.0 10.0 1.0 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 0.1 Large Stocks Long Treasury Bonds 0.0 T-Bills The Dollar Gold 12/21/2013 12/21/2013
Total Real Returns, Large Stocks, Long Treasuries, T-Bills, Gold and the Dollar $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940 1941 1942 1943 1944 1945 Large Stocks Long Treasurys T-Bills Gold The Dollar 12/21/2013 12/21/2013
Total Real Returns, Large Stocks, Long Treasuries, T-Bills, Gold and the Dollar $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 1945 1946 1947 1948 1949 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 1964 1965 Large Stocks Long Treasurys T-Bills Gold The Dollar 12/21/2013 12/21/2013
Total Real Returns, Large Stocks, Long Treasuries, T-Bills, Gold and the Dollar $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Large Stocks Long Treasurys T-Bills Gold The Dollar 12/21/2013 12/21/2013
Total Real Returns, Large Stocks, Long Treasuries, T-Bills, Gold and the Dollar $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Large Stocks Long Treasurys T-Bills Gold The Dollar 12/21/2013 12/21/2013
Total Real Returns, Large Stocks, Long Treasuries, T-Bills, Gold and the Dolla r $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Large Stocks Long Treasurys T-Bills Gold The Dollar 12/21/2013 12/21/2013
30 Year Compounded Annual Real Returns - For 30 Year Periods Ending 1955 Through 2011 12% 10% 8% 6% 4% 2% 0% 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 -2% -4% Large Stock Return Long Treasury Total Return T-Bills 12/21/2013 12/21/2013
Stocks Returns Over 30 Years • Real Returns, after 30 years, over and above inflation, were always over 4% and sometimes over 8%. • At 4% real, purchasing power doubles every 18 years (quadruples in 36 years). At 8% it doubles every 9 years (16 times in 36 years). • But what about volatility along the way? • The returns were NOT steady year after year. 12/21/2013 12/21/2013
100% equities $6000 per year invested 12/21/2013 12/21/2013
Balanced 60% equities, 35% Corporate Bonds, 5% Cash $6000 per year invested Real Dollar Growth of $6000 per year savings (inflation adjusted) 57 30-year scenarios starting in 1926 through1982 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 Year After Start of Savings $0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 12/21/2013 12/21/2013
30 Year Ending Portfolio Values Ending Portfolio Value for All 30-year savings scenarios beginning in 1926, '27 etc. to '82 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $0 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 Year Savings Started 12/21/2013 12/21/2013 6k per year all equity 6k per year 100% Bonds 6k per year 60/35/5
40 Year Ending Portfolio Values Ending Portfolio Value for All 40-year savings scenarios beginning in 1926, '27 etc. to '72 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 Year Savings Started 6k per year all equity 6k per year 60/35/5 6k per year 100% Bonds 12/21/2013 12/21/2013
50 Year Ending Portfolio Values Ending Portfolio Value for All 50-year savings scenarios beginning in 1926, '27 etc. to '62 $5,000,000 $4,500,000 $4,000,000 $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $0 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 Year Savings Started 6k per year all equity 6k per year 60/35/5 6k per year 100% Bonds 12/21/2013 12/21/2013
4% Withdrawal from $1 million portfolio over 30 years The Safe Withdrawal Rate 12/21/2013 12/21/2013
100% equities, $40,000 per year withdrawn from $1 million to start 12/21/2013 12/21/2013
60% equities, 35% Corporate Bonds, 5% Cash $40,000 per year withdrawn 12/21/2013 12/21/2013
Retirement Ending Portfolio Values Ending Portfolio Value for All 30-year $ 1 million retirement scenarios beginning in 1926, '27 etc. to '82 $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 Year Savings Started All equity, $40k withdrawal Balanced 60/35/5, $40k withdrawal 12/21/2013 12/21/2013
Rolling 30 Year Returns - Nominal - For 30 Year Periods Ending 1955 Through 2011 16% 14% 12% 10% 8% 6% 4% 2% 0% 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Stock Returns Long Government Bond Total Returns 12/21/2013 12/21/2013
Rolling 30 Year Nominal Returns - For 30 Year Periods Ending 1955 Through 2011 16% 14% 12% 10% 8% 6% 4% 2% 0% 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Stock Returns Long Gov. Bond Total Returns Starting Bond Yield 12/21/2013 12/21/2013
Rolling 30 Year Nominal Returns - For 30 Year Periods Ending 1955 Through 2041 16% 14% 12% 10% 8% 6% 4% 2% 0% 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 Stock Returns Long Government Bond Total Returns Starting Bond Yield 12/21/2013 12/21/2013
Rolling 20 Year Returns - For 20 Year Periods Ending 1945 Through 2031 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 2029 Stock Returns Bond Total Returns Starting Bond Yield 12/21/2013 12/21/2013
Estimating Long Term Stock and Bond Returns • Long Term Stock Returns approximate: – Real GDP growth, plus inflation, plus Dividend yield – What is the current estimate of this? • Long Term Long Bond Returns approximate: – The yield on long term bonds at the start of the period – What is the current estimate of this? 12/21/2013 12/21/2013
S&P Earnings $ versus U.S. GDP billions 1929- 2011 $1,000 $100,000 $100 $10,000 $10 $1,000 $1 $100 $0 $10 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 US GDP billions $ S&P Annual Earnings $ 12/21/2013 12/21/2013
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