On March 10th I facilitated Lesson #10 of Financial Peace University, a course that teaches individuals and couples how to manage their money. In this lesson we learn about mutual funds – their benefits and their risks. The instructor, Dave Ramsey teaching on DVD, states a statistic that the stock market has achieved an average rate of return of just under 12% over the past 70 years.
Many people don’t believe this to be a true number, but you can look it up yourself. A great place to start is the Yahoo Finance page and look at the past dozen years or so of the S&P 500. (Example below is from March 1999 through March 2008).
Then look at what the DOW Industrial Average has done recently. (Chart below is for the past five weeks).
I see a comeback from the S&P chart (the drop in the middle was the tech-bubble in 2000) and we could be seeing a comeback in the market right now. Have we hit the bottom? There is no way of knowing for sure. But if a student from that class had invested some money on the day he/she took the class then you could say he’s seeing a great rate of return, somewhere around 18%. What will that money look like in the next 5-10 years if it the market fully recovers as it did in 2001-2006? Or as it did in the 90’s after the S&L crisis? Or as it did in the 80’s after Black Monday? Or as it did in the 70’s when there was an energy shortage and inflation was at record highs? Or as it did…
We may have seen the bottom, but not for the last time. Keep with the plan.