Realistic Expectations Please, Barefoot

Hi Scott,

You often quote an ‘800-fold increase’ in the share market in the last 100 years. As an investor in blue chip stocks for the last 25 years, this regrettably has not been my experience, nor do I have 75 years left for this to right-size itself. For first-time investors, and those seeking your advice, surely it is now time to recalibrate your ‘100 years of history’ example and use a more relevant percentage -- the last decade, for example.

John

Hi John,

You got your figures slightly off.

The US market has actually risen 18 thousand-fold over the past 100 years.

But, hey, I take your point -- in the long long run we’re all dead (or cryogenically frozen, like Walt Disney), right?

That’s why I’ve consistently said three things:

First, focus on dividends, not share prices. The bulk of your returns come from dividends rather than capital growth (which is why, in my days working for Channel 7 News, I used to die a little each night when I read out the ASX 200 price index).

Second, over the long run you can expect a return of about 6 per cent per annum after inflation -- and that’s a key point, you want your nest egg to grow faster than inflation. At 6 per cent you’ll double your money every 12 years.

Third, there are plenty of lean years in investing where things go sideways, or backwards. That’s the price you pay for earning higher returns over the long run. That’s why I advocate having three to five years of living expenses in retirement in savings and term deposits to get your over a hump.

The share market (as measured by the dork on the nightly news) has basically gone nowhere over the last ten years. But if you factor in dividends, you’ve made 60 per cent. That’s the real story.

Scott