Comments on: Is Manhattan worth more than $24 in beads?

By: bad credit loans

bad credit loans — Wed, 21 Oct 2009 21:56:24 +0000

Great blog! I posted some comments before anyway, because a lot of your stuff is really great. You are a verry good at this.

By: JL

JL — Sat, 14 Mar 2009 17:09:38 +0000

Hmm. You may be right: my info comes from here: http://politicalcalculations.blogspot.com/2005/08/mapping-average-stock-market-returns.html, and here: http://www.moneychimp.com/features/market_cagr.htm.

Actually, I think the S&P is a pretty good indicator the market as a whole. The difference between your numbers and mine seems to be that mine are adjusted for inflation — which in itself would cut 3-4% off.

Though, actually, I can’t quite get my head around inflation alone making a difference between 171 quadrillion and 69 trillion. Though there’s a good inflation calculator here — http://www.westegg.com/inflation/ — that suggests that maybe it does.

Cheers,

By: Finance Nerd

Finance Nerd — Sat, 14 Mar 2009 13:45:10 +0000

JL — my source was Ibbotson and Associates who put out a paper stating that the average return of the entire NYSE from 1926 to 2004 was 12.39%

Shiller also showed a return of 10.57% for the entire US market for the period 1900-2004.

I think the difference is that they were looking at the entire market, rather than the S&P or Dow. This is primarily due to the fact that small stocks have a higher historical average return, and these stocks are typically not part of the S&P 500 or Dow.

So, in addition to showing how much of a difference an extra percent per year makes, this also shows the importance of asset allocation. You need exposure to the whole market, not just large-cap stocks.

By: JL

JL — Sat, 14 Mar 2009 04:26:52 +0000

Actually, the S&P has gone up an average of 7.78% a year since 1900. Dow about the same. So 24 bucks over 383 years comes to 69,555,887,806,951.58. That’s a little over 69 trillion. (Which goes to show you, if nothing else, what a difference a few percentage points in interest can make…)

And that’s if you compound annually. If you compound daily it comes to about 208.8 trillion.

Pocket change…

By: JTapp

JTapp — Fri, 06 Mar 2009 18:51:16 +0000

I’m reminded of President Bush’s Town Hall Meetings when he was trying to privatize Social Security. He kept gushing about the “miracle” of compounding interest.

Both Dave Ramsey and the textbook I use for teaching personal financial planning use the classic example of Abe, who saved for 10 years then quit, and Ben, who waited 10 years to start saving and never caught up with Abe despite saving a higher % of his income over time.