Fun Facts Newsletter | February 2014

Five years after 2008, what have we learned? Is this a “teachable moment”? These are the questions we opened our January 2014 “Fun Facts…” with, wherein we showed that investors with a long term time horizon (as all of our readers should be) earned stock market returns in the 7% to 8.5% range for the 10 years ending 12/31/13. Let’s slice and dice it a little more and look specifically from the pre-2008 peak to 12/31/13. Even though the broad stock market got hammered in the global financial crises that was triggered in the fall of 2008, the previous peak had been July 2007. So, from June 30, 2007 to December 31, 2013, a period of 6 ½ years, our firm’s hypothetical model stock portfolio earned about 4.2% while the MSCI ACWI (you remember that now, don’t you, ACWI equals All Country World Index, so a good measure of a broadly diversified global stock portfolio) earned just 2.86%. Neither are startling absolute numbers, but the point is that they are not massive losses as some perceive that stock market period to be. It was a heck of a ride, but we still ended with gains.

Dividends are another valuable benefit of stock market investing. Successful and profitable companies share their cash profits with cash dividends to shareholders and regularly increase those cash dividends as cash profits increase. This is reflected in broad stock market indices and the funds that invest in them. For example, the Vanguard 500 Index Fund which, you guessed it, tracks the Standard & Poor’s 500 Index, paid dividends on a $100,000 investment in 1993 of $2,398.52, but that figure grew to $7,057.20 in 2013, nearly tripling in over 20 years. For you data geeks, that represents a compound annual growth rate of over 5% or well above the rate of inflation, therefore increasing investors’ purchasing power. The growth was slow and steady, with a few modest downturns in weak economic periods, so the year to year growth doesn’t seem like much but adds up significantly over long time periods.

Fun Fact Trivia: For you “Today In History” buffs, February 3, 2014 marked the 101st anniversary of the 16th Amendment to the U.S. Constitution establishing Congress’s right to impose a Federal Income Tax. The initial rate was a flat 3% on incomes over $800. Oh, those were the days...

Save the Date: Our first 2014 Client and Friends Education Event will be on Tuesday, March 25, 2014 at 7:00PM at The Anderson Center. The topic will be: Long Term Care Insurance: Points to Ponder. Be sure to invite your friends!

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