April 19

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Markets Will Double by 2034

Chris has recently passed his driver's license test, which is great news! As you may recall, he failed the first time due to his inability to pass the eye exam. However, after getting a new pair of glasses and practicing his three-point turn, he passed with flying colors. This is a huge relief for us as he can now take his younger brother to school. While the youngest, Jesse, still attends a different campus, they will all be together starting next school year. This means I will finally get to sleep in! (apart from the dog's tendency to want to play at the crack of dawn)

My daughter Senay had her senior night for lacrosse, and we were fortunate enough to attend. We walked arm in arm through a massive balloon archway, which was a lovely experience. Youth sports are an incredible opportunity for children, even if they don't plan on pursuing a career in professional sports. It helps them work better with others, learn the importance of a good work ethic, and provides excellent exercise. After the formal ceremony, we paid $5 to hit her with a cream pie. Worth every penny.


If you have been following my articles on a weekly basis, you must be aware of the immense potential of the stock market. I have discussed in detail about how investing in the stock market can prove to be crucial for your financial stability in the long run.

I’ve also spoken about how no one knows what the markets will do. No one. Anyone you see on TV or any article you read online is pure conjecture. They are guessing. They might as well be using a crystal ball. In the short term, no one ever could diagnose the markets. Don’t let them derail you.

I can’t believe I am doing this, but…..

Now, I am going to make a big prediction.

Are you ready?

A portfolio of stocks will double in value over the next ten years.

Have I completely lost my mind? Are you sitting at the screen staring in disbelief? It’s ok. I understand. But let me logically argue why this prediction has a good chance of coming true.

I like to think of myself as an economic historian. So, let’s examine the past century to find clues to repetitive long-term trends.

From 1920 to 1930, the Dow Jones rose from 107 to 244 points. You may notice that the points more than doubled—they increased by 128%. So, my prediction would have come true.

Let’s look at all the other decades.

1930’s, the Dow went down from 244 points to 151 (or a 38% loss)
1940’s, the Dow went up from 151 points to 198 (a 31% gain)
1950’s, the Dow went up from 198 points to 679 (a 242% gain)
1960’s, the Dow went up from 679 points to 809 (a 19% gain)
1970’s, the Dow went up from 809 points to 824 (a 2% gain)
1980’s, the Dow went up from 824 points to 2801 (a 239% gain)
1990’s, the Dow went up from 2801 points to 11,357 (a 305% gain)
2000’s, the Dow went down from 11,357 points to 10,583 (a 7% loss)
2010’s, the Dow went up from 10,583 points to 28,868 (a 172% gain)

As an aside, $100,000 invested in 2020 is now worth $140,505.

"But Dave," you may be saying to yourself, "there are a lot of decades where the markets did not go up by 100%. How can you say my money would double in a single decade?"

I have four words for you: dividends and compounding interest.

When you look at the S&P 500 and Dow Jones, the percentage changes do not include the dividends. It only reflects the point increase.

For example, if Coca-Cola is paying a 5% dividend and its share price appreciates from $100 to $106 during the year, it looks like you made 5%. You didn't. You made 11%. The dividend paid out is not included in the gain (in the share price).

If the point value of the S&P 500 index increases by 10% during the year and the index, as a whole, is paying a 1.36% dividend (which it is right now), investors would have made 11.36%.

Let’s examine the 1940s. At first glance, it is not particularly exciting. A 32% increase over an entire decade is only 3.2% yearly.

However, those stocks also paid out dividends, which are not included in the point increase.

In the 1940s, the average dividend across all the companies in the Dow was 4.7%. That is a huge deal. The actual amount of money an investor would have made was 3.2% stock price growth plus 4.7% dividend per year, which is 7.7% yearly.

Then, we come to compounding interest. Albert Einstein famously said, "Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it."

Compounding interest is the idea that your money makes money on the money that it makes.

Let’s say:

Year 1: 10% investment return on $100 is $110.
Year 2: 10% investment return on $110 is $121.
Year 3: 10% investment return on $121 is $133…..you get the idea.

In the 1940s, 7.7% compounding over ten years is a 110% increase. Your money would have doubled. This is getting rather mathematical, but it is essential to give you a proper perspective on the long history of the markets.

If you include dividends and compounding interest, your money would have doubled every decade except three. So you would have doubled your money in seven of the last ten decades.

You would have only lost money during the 1930’s (The Great Depression).

It's not a guarantee, but I'd certainly bet on your money doubling in this decade over betting the markets will go down.

Be Blessed,

Dave

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