Does the market really return 10% over the long-term?

Inflated Dividends

As I posted last week, we had planned to go live with our new service at the end of last week if our beta testers didn’t find any problems. Well, they didn’t find any problems, but they made some suggestions for improvements that would make the service so much better that we just couldn’t go live without them. So the programmers are working on adding those improvements, and in the mean time we’re still accepting beta testers. Just email us at if you are interested in being a beta tester.

We also had a beta tester suggest that $4.95/month was too low for how valuable the service is and that this price makes it look like a scam. So we’d like to point out that all payments will be made through PayPal, so we will have no access to the financial information at any point. There will also be a one month free trial at the beginning of every subscription, so you can decide for yourself if the service is worth the price, and you can cancel at any time. But the beta tester has a great point, the price is probably much too low for the value that the service provides.

So we will honor the $4.95/month price as a 75% off promotional price for the first month after we go live . Anyone that signs up for that price in the first month will receive that price for as long as they continue their subscription. Any subscription that starts after the first month will be at the full price of $19.95/month. As I noted in the last post, beta testers will still receive an extra free month of service beyond the initial free trial month.

Is 10% Realistic?

One of the numbers often touted by financial literature is the supposed 10% long-term return of the market. In the past, I’ve basically assumed that it must be right just because of how many places it has been published. And I’ve even quoted it in a few of my posts here as well. So this past weekend I decided that if I’m going to quote the number, then I should at least verify that it is true. I was kind of surprised by what I found.

To conduct this little experiment, I went to the Yahoo! site and looked at the historical prices for the Dow Jones Industrial Average (DJIA). They had prices back to 1929, so that’s how far back I looked.

First I calculated the return each for year from 1929 to 2006. This data is displayed in the graph “DJIA Return that Year (%)”. You can see there are some high return years, some as high as 40%, but there are also some negative years, so I was curious to see how all that evens out.

Next I looked at the value of a dollar invested in 1929 and held until 2006. This came out to be right around $40. So over the 77 years between 1929 and 2006, you could have turned each $1 into $40, assuming you lived that long. (This is signified by the blue line in the chart below.)

Finally, for each year, I calculated the average return if you invested on that year and held through 2006. (These calculations are represented by the pink line in the chart below.) Here’s where things get interesting. If you invested any where between 1978 and 1995, and have been holding since then, then you have indeed experienced on average a 10% return on your money for all the years between then and now.

But if you bought any time between 1995 and 2004, then you’ve probably experience much lower rates of return. 1995 is 10 years ago. 10 years seems like long-term to me.

Or if you bought before 1975, then you’ve averaged about 6% per year. And you’ve been invested for more than 30 years. That seems like the epitome of long-term. Not much of a reward for all your patience.

So this makes me wonder quite a few things:

1) Does this mean that the 10% number is just a fluke of the last 20 years?

2) Is the real long-term average of the market actually closer to 6%?

3) Does this mean that a relatively safe bond that pays 6% is actually a better investment than exposing your capital to the risks of the market?

4) If we take into account that the Fed’s stated goal is 3-4% inflation per year, then is our real return for risking our money in the market only 2-3% per year BEFORE taxes?

I must say that this puts quite a bit of doubt in my thoughts about the effectiveness of the set it and forget it or index fund portfolios. I guess it just cements in my mind that I need to be paying attention to my investments and using the tools available to me, like this site, to make sure I stay ahead of the game.


The benefits of a trading log

Inflated Dividends Nearly Ready

The beta testing of Inflated Dividends seems to be going really well. If we don’t find any problems in the next week, we’ll start offering the service for $4.95/month with a one month free trial. Beta testers will get two months of free service as thanks for their help. If you’re interested in being a beta tester or just trying out the service, drop us an email at and help us drive it through the homestretch this last week of testing. All we ask of our beta testers is to tell us if they see any problems.

Subprime Is Not Sublime

You might have heard some of the brouhaha about subprime lenders lately. At least two of the better known ones have been regulars in our “Highest Paying Dividends” lists, NEW and NFI, but if you followed our advice about watching payout ratios, then you probably don’t own them. These are good examples of companies stretched to the limit in good times. Then when even a little bad news comes that stretches them just a bit further, they break. It’s also a good reminder to have stop loss orders in, which means knowing before hand how much you are willing to risk in a given trade.

Support for the Site

Wanted to thank our users for the donations we’ve received. Also wanted to note that a good way to donate to the site without any extra expense to you is to make your Amazon purchases through out Gifts page. A link at the bottom allows you to search for anything on Amazon and we get a percentage of the sale, and its the same price whether you buy it through our link or go straight to Amazon. So if you enjoy the site and find it helpful, please make your purchases through us.


If you go to our Gifts section, you might notice the absence of the Paraliminal CDs mentioned in the last post. We had submitted a request to that company for a free CD so we could try them out and let you know what we thought. On their website they have an offer for a free CD if you put a link to their website on yours (which we did in our last post). We also signed up to be an affiliate for them to sell their CD. Turns out they emailed and told us they have an unstated rule against getting the free CD and being an affiliate. So we cancelled our affiliate account and waited for the free CD to arrive after emailing and telling them we had cancelled it. Given that was more than a month ago, and we haven’t even received an email reply, we’re going to stop holding our breath waiting for the CD.

Benefits of a Trading Log

But I’m still looking for ways to improve my trading and remove the emotion from it. One thing that has helped me recently is to keep a trading log. Before I place a trade I record:

1) Exactly why I bought a stock
2) What circumstances could change to cause me to sell it
3) What my stop loss or the amount I’m willing to risk is
4) How I expect to profit (profit target, trailing stop, dividend capture, etc.)
5) The buy-in price and number of shares
6) The buy-in date

And when I sell:

7) The sell date
8) The sell price
9) The sell reason (stop loss, profit target, circumstance change, etc.)

This gives me a plan to follow, so I’ll know what I need to do and when. Since our brains tend to shutdown under stress and go into fight or flight mode, it’s very helpful to have this all laid out when I am thinking straight, which means before I buy the stock.

Another helpful thing I’ve been doing is not checking the market during the day. If I don’t see the minute by minute jumps in my stocks, its much easier to think clearly over the night about any changes that happen during the day. And since I have my stop losses in, I’m not worried about missing something. I couldn’t catch anything any faster than my stops can so why waste the mental effort worrying about it.