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 firstname.lastname@example.org 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.