History Is On Your Side


Every retirement plan, defined benefit pension plan, IRA, 401K, annuity, insurance plan, etc. is based on the  fundamental assumption that the stock market will continue an upward trend. This Plan assumes that you will invest in the stock market. To avoid the stock market out of fear is to put your financial future in jeopardy.

Warren Buffett Concurs

Here is a quote from Warren Buffett.

“The nice thing about investing in stocks is that, over time, equities are going to do well,” Buffett tells USA TODAY. “American business is going to do well. America is going to do well. So you have the tide with you.”Building wealth in stocks is still the way to go, even though the ride can get bumpy from time to time.

The quote is from an article  by that appears in USA Today, 10/24/2013.  You can read the entire article by clicking HERE.

History of The Dow Jones Industrial Average (DJIA)

The DOW goes up, the DOW goes down. In the long run, the DOW is UP! History is on your side …. so long as you have 15 or more years to be invested. If you don’t believe that, then you must find something else to do with your money – buy Gold perhaps.

DJIA Chart 1900 - 2014

Note the  precipitous decline during the “Great Depression” (381 down to 41).  The great depression of 1929 – 1933 was a catastrophic event for those who were counting on their stock portfolios for retirement. The market had huge losses (-17%, -34%, -52%, -23%)  four years in a row. No wonder people were jumping out of windows to their death. Since then, however, the market has grown by 3570%!

Look How “The Market” Recovers From Disaster!

Look at the right hand column of the graphic – see the percent recovery after EVERY market decline!

Bear Markets and subsequent Bull Markets History from 1929

 More Evidence of Recovery After DisasterPays to stay invested

Conclusion: There is

Up Much More Than Down

 Distribution of PCT Change In DOW, 1900-2014
And here is a table that demonstrates how infrequently the market has negative runs.
Distribution of DOW Year End Values, 1900 - 2014

It turns out that the market had only one time when it was down four years in a row. On the other hand, there are 7 times when it was up 4 or more years in a row.

Probability Of Recurrence of Great Depression?

How likely is it that there will be another string of four down years in a row?

Well, how many strings of four years are there in 116 years? There are 112 strings of four. Thus there is a 1 in 112 chance, less than 1%, that there will be another string of losses four years in a row. Note that the market recovered  after every decline, especially the most memorable one in our lifetime, 2008-2009.

Over the last 114 years, the sum of the up percentages exceeds the sum of the down percentages by 8.16! If the DOW is not up in the long run, nothing else will be doing well either and that would mean the the entire world economy was in shambles and all bets are off.

No 50 Year Period Has Lost Money

Index Fund Advisors introduces a concept they call Rolling Periods. For a selected time period, 50 years in this case, they look at every instance of 50 years since Jan 1, 1928 through April 30, 2015. There are 449 Rolling 50 year periods in that time frame. The first one starts on Jan 1, 1928 and ends on Dec 31, 1978. The second rolling period starts on Feb 1, 1928 and ends on Jan 1, 1978, etc.

Here we will look at the 449 Fifty Year Rolling Periods from Jan 1, 1928 through April 30, 2015. Note again that this period includes the worst market period in history, the great depression, 1929 – 1933.

Rolling Period Return Data: 87 years, 4 months (1/1/1928 – 4/30/2015)
  • Investment Horizon in years: 50
  • Number of 50 Year Rolling Periods 1928 – 2015: 449
  • Median Annualized Return (50th percentile): 11.02%
  • Median Growth of $1: $185.99
  • Lowest Rolling Period Date: 9/29 -8/79
  • Lowest Rolling Period Annualized Return: 7.43
  • Growth of $1 in lowest period: 36.03
  • Highest Rolling Period Date: 7/49 – 6/99
  • Highest Rolling Period Annualized Return: 13.92%
  • Growth of $1 in highest period: $673.03

Source: Index Fund Advisors 50 Yr Rolling Periods

Never A Losing 15 Year Period (except for 2 times)

Recall that “The Plan” requires at least 15 years of investing before retirement. Why? Because other than 2 periods during the Great Depression years, there has never been a 15 year period where an investor has lost money!

This amazing fact is demonstrated at the excellent website of Index Fund Advisors. Click HERE to see that 99.77% of 859  monthly, rolling 15 year periods produced positive results. Note: they use the S&P as their investment index fund. Since the Dow has outperformed S&P over the long run, their results will hold for the VTI too.

Summary of IFA’s data:

  • 99.77 % of Rolling Periods had a Positive Return
  • Lowest Return:-0.34% 12/28-11/43 (1928 is first year of Great Depression!
  • Highest Return:19.69% 10/82-9/97

The investor who starts at age 35 and invests for 30 years will in all likelihood have a considerable sized portfolio at the time of retirement.

15 Year Investment Period -> Always Money in Retirement

Clicking on THIS LINK  will demonstrate that anyone  investing $100 a week  at age 50 and withdrawing AT LEAST $100 a week or more (up to 5% per year) starting at age 65  would  STILL have thousands left at age 90 (again with the exception of those years impacted by the great depression).

* Much of the data I report in this website was learned from an excellent online advisor firm, Index Fund Advisors. They maintain that a diversified portfolio is superior to what I propose and they make a good case. If you do as they say, you will do OK. But it’s harder to do and they charge a fee of .9%; which, BTW, is very low.

Return To IFR Strategy

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