I’ve posted Entry #85 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called The Last 11 Years Have Been Lucky Ones for Stock Investors.
Juicy Excerpt: Say that we were back in January 1981, the beginning of the 30-year time-period that ended in January 2011. The realistic expectation would be that we would see an annualized 30-year return of something in the neighborhood of 6.5 percent real. That’s the long-term return that has applied for stocks going back as far as we have records. So I plugged that number into the calculator as the 30-year return that would apply for the time period from 1981 through 2010.
Then I plugged in the returns we actually saw appear from 1981 through 1999, the 19-year returns sequence that was set in stone at the beginning of the 11-year time-period we are examining in this article. For the first results column in the calculator, I entered the returns we actually saw from 2000 through 2010. I let the calculator complete the second column, with the aim of bringing the annualized return for the entire 30-year period to 6.5 percent real, the long-term annualized return that has applied for U.S. stocks throughout history.
Assuming an investor had a $10,000 portfolio in 1981 and added $10,000 to his account in each of the 30 years, his portfolio amount at the end of 30 years for the Column One return pattern (the one we saw play out in real life) was $921,287. The Column Two return pattern (the most realistic one that could have been anticipated) generated a final portfolio value of $737,497. That’s a difference of over $180,000 in portfolio value.