Dow Jones Inflation Adjusted

[For a deeper analysis with charts and graphs, take a look at DJIA Adjusted for Inflation]

The stock market is nothing more than trading shares of public companies. The people who own the stock technically own an interest in the company, but still they have no voice in regards to how the company is managed or what the company does that might affect the price of the stock. Since people who buy stocks in the stock market (this includes mutual funds) have no influence in their investments, it is simply gambling. This has nothing to do with risk or volatility. Pure and simple gambling.

The Dow Jones Industrial Average, for example, is made up of the top 30 companies and various sectors throughout the economy, whereas the Standard and Poors 500 index is the top 500 companies. Most of the time, even if the stock market gains, you are still losing money. You pay up to 5% (or more) in fees: management fees for mutual funds, fees for making trades of stocks, and fees to financial planners for assets under management (typically 1%). Then you pay capital gains tax (currently at 15%). Ohh…be sure to subtract out the inflation from your gain, since a dollar from a year ago does not have the same buying power of a dollar today. What you are left with (if positive) is not very much at all.

The market sunk in recent months. Taking a look at the stock market during the past 8 years, it is clear that even as a long term investment, it is still horrible. There was much excitement when the Dow Jones was breaking past the 14,000 mark, but that was all just media hype.

About six months ago while contemplating the market and current trends, I had analyzed the market to find out if people are really making money, or if their “long-term” retirement is going down the drain. My analysis from my journal is as follows:

On January 14, 2000, the DJIA closed at 11,722.98, which was the highest at the time. However, adjusted for inflation during the last 8 years, it should be at about 14,586.90. Clearly, even at it’s highest point of 14,000 (which it is not currently), the Dow Jones is not even keeping pace with inflation! In fact, given the recent DJIA of 12,182.13, you could say that the DJIA has declined OVER 20% (inflation adjusted) over the past 8 years. This decline is only inflation and does not account for management/trade fees or capital gain taxes.

If you think it is bad for those 30 companies, looking at the broader market is even worse. The S&P500 was at a peak of 1451.30 on January 18, 2000 and is closed today at 1331.29. It is lower BOTH in nominal and real pricing. Inflation adjusted, the S&P 500 has lost nearly 33% over the past 8 years. These inflation adjusted losses are not accounting for management/trade fees or capital gains taxes.

I much rather invest in something over which I have full control. A couple things that come to mind: Personal improvement and skills (including education) and your selfowned self-managed business. There is also real estate, and although you do not have full control of its value, you have more control than owning stocks. You can paint a house, make repairs, do remodeling, etc and improve its value; but it is nonetheless subject to market forces.

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