I’m surprised at how much faith people put into the stock market. This is not the best vehicle for investments. Financial advisors (if they can even be called that) will tell you to invest in the stock market over the long term because it has averaged 10%-12% per year. That is a load of bull! Why can’t they just tell the truth that the Federal Reserve has corrupted our monetary system using inflation as a false sense of return on investments! The buy and hold for the long haul strategy does not work.
For my analysis, I am using data of the Dow Jones Industrial Average (DJIA) from 1914 to present, as well as inflation data supplied by the Bureau of Labor Statistics (BLS.gov).
Over the past 10 years, the DJIA has increased from 9358.83 to 10825.17. That is fine and dandy. It appears that you have gained … until you take a closer look at the data. That represents an annual rate of return of only 1.47%. Inflation adjusted is -1.44%. That’s right, you have lost money! When you factor in a 1% fee for assets under management, and capital gains tax (currently at 15% of the 1.47% annual gain), you’ve lost even more … down to -2.66% per year LOSS!
So, then the “financial advisor” says that 10 years is not long enough, that you are investing for retirement. Okay, let’s take a look at what has happened over the past 40 years. It is amazingly a little bit better, but still very bleak and nowhere close to the 12% return they tell you. In fact, over the past 40 years, the DJIA has had an annual rate of return of only 6.28%, or rather 1.56% adjusted for inflation. Factor in the management fees and capital gains tax, and you still have LOSS … to the tune of -0.38% per year.
Well, that’s no good. Why not then look at what the DJIA has done over the long haul of 80 years. We should definitely have some gain then. In fact, it is even worst than the past 40 years. That’s right, over the past 80 years the DJIA has an annual rate of return of only 4.51%, which is 1.23% adjusted for inflation. Again, a total LOSS of -0.45% per year for 80 years!
When are these “financial advisors” going to inform the public about the truth. The stock market is a horrible investment, not only because of the above obvious historical data, but because you have absolutely no control over the stock prices. What was here one day can be gone and worthless tomorrow (such Enron, Bear Stearns, et cetera). And we’re supposed to trust the Federal Reserve, the bankers, the lenders, the “financial advisors” with our money??? Not a chance!
Related posts:
[...] [For a deeper analysis with charts and graphs, take a look at DJIA Adjusted for Inflation] [...]
This is a nice analysis and confirms my long held suspicions. Where, however, would you recommend on invest?
That is, where would you recommend investing?
There are 3 places that I would recommend investing (which I will describe in more detail in a future article):
(1) personal self-improvement and education.
(2) developing and running a profitable business.
(3) Creating an income stream from royalities (similar to an author or artist)
[...] recently posted an article busting the myth that the stock market increase 12% per year. In fact, its return is between 1% to 2% per year when adjusted for inflation. I also showed [...]
You make a good point. It looks like, however, ignoring dividend yields in your analysis drives you to the potentially misleading conclusion: One is bound to lose money in the dow. If dividends are taken into consideration, i think you would have a less dramatic conclusion: One makes little money in the dow.
[...] have shown how stocks are a horrible investment, how investing in gold is a bad decision, and how real estate can not be considered an [...]
[...] start seeing growth in the stock market again. Not a great place to put your money given that the stock market averages a return of only 1.5% per year when adjusted for inflation! Tags: DJIA, Economy, Investing, Stock [...]
[...] year when adjusted for inflation, and may take decades to recover from a large decline. Based on Inflation Adjusted DJIA data, the peak in 1929 was not ultimately exceeded until 1992. That’s 63 years of only [...]
[...] 2. You have extra money sitting around to invest. If you can get a better INFLATION-ADJUSTED AFTER-TAX GUARANTEED RATE OF RETURN that is higher than your current mortgage interest rate, then that is where you should invest. However, I have yet to find such an investment. Paying off your mortgage early gives you a GUARANTEED rate of return equal to the mortage interest rate for the remaining term of the mortgage. Even when adjusting for inflation, paying off your mortgage will yield a higher return than investing in the stock market. [...]
[...] that, from a previous Analysis of the Stock Market Adjusted for Inflation, your investment returns barely (if that) keep pace with inflation, so the only real source of [...]
[...] Of course, the larger argument is that all things will increase in value forever, and your investment today will be worth much more in the future. One only needs to look at how the This of course is the sound financial principle called inflation. Of course the government and large companies argue that some inflation is good. In the above example, the employee provides $1,500 in todays dollars, and maybe gets a return of $2,500 in future dollars. Yet, when viewed against inflation, that increase (if there was even an increase and not a decrease) is minimal. Take a peek at this excellent article to understand more about the real numbers of inflation at work on investments: DJIA (Dow Jones) Adjusted for Inflation. [...]
[...] DJIA (Dow Jones) Adjusted for InflationObama to Repeal Bush Tax CutsMedian Home Prices Inflation AdjustedObama Halloween Spread the Candy DistributionGold Prices Adjusted for InflationAR-15 Automatic Rifles as InvestmentDow Jones Inflation AdjustedObama’s New Website Illegally RegisteredMoney Merge Account Scam and Utah FraudStock Market Plunges 777 pts and Spikes 485 pts Archives [...]