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April 27, 2009


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I don't think this was a well researched article that you provided. For one, neither stocks or funds have averaged 10 - 12% per year. This is a number that has been thrown out of the air mostly by people who don't know. I'm surprised that I would have found an article on this site that would give such disinformation. When you want a real professional to write an article for you, let me know some time. I'll give you factual information that will be backed up. Investing is a bit more complicated than what the author suggested. If it were as easy as he's suggesting, the win vs lose ratio would be much better than what it is. Currently only 10% of all investors beat the market which leave 90% that lag behind and in most cases lose money. This article was terrible and incomplete. Better research needed.

I would much rather buy mutual funds directly through Vanguard than pay such high transaction fees! Vanguard mutual funds have expense ratios around 0.2% and no other fees on top of that! Why would I pay so much to invest?

I agree with Jim. This article seems a bit overoptimistic. As if it was written years ago and is just being plugged in now, without considering the increased risk you're seeing for formerly low-risk investments. It's got some unrealistic idealism. It might light a fire under someone to invest, but it should paint a more realistic picture.

I agree with Independent Beginnings, you can't beat Vanguard.

I disagree with Jim. According to Standard & Poor's, the historical return of the S&P 500 before last year's meltdown was 12%, including last year it is 11%. Do you have a more reliable source than Standard & Poor's?

Jim is quite right about the futility of trying to beat the markets, and that the vast majority of investors underperform the market. This is the direct result of buying what's hot and selling what's not. Unfortunately, that's what feels comfortable. :.

Mutual fund is my best choice for recent condition.

According to:

From 1950-2007 the real return of the S&P 500 with dividends is 7.6%. That doesn't include the approximately 50% drop after 2007 but is inflation-adjusted.

According to:

The S&P 500 averaged 10.6% return from 1926-2007. This is not "real" return, i.e. inflation-adjusted. It also doesn't include the drop after 2007.


The S&P 500 made its debut on March 4th, 1957 in which it closed at 44.06. Today (April 28th, 2009) the S&P 500 closed at 855.16. Since we want to be as precise as possible in our calculation while keeping it simple at the same time, I'm going to reference the March 4th, 2009 closing price of the S&P 500 so that we have an exact range to do our calculation. On March 4th, 2009 the S&P 500 closed at 712.87. The equation we use in determining the averaged annual return on an investment is called CAGR. The formula for CAGR is:

I = (FV/PV)^ (1/N) - 1

I won't go into detail showing you how the formula plays out because of the complexity and this isn't a math forum. Another way you can calculate CAGR is to purchase a "financial calculator".

From March 4th 1957 - March 4th 2009 is exactly 52 years. Our Present Value (PV) is the 1957 closing price of 44.06 and our Future Value (FV) is the 2009 closing price of 712.87.

Using these FACTUAL and easy to obtain historical numbers, the S&P 500 has had an Averaged Annual Return of EXACTLY 5.50%. That's a far cry from the numbers you are claiming the Standard and Poors has on their website where I don't seem to find. In any event, if they were advertising a 12% Averaged Annual Return, you may have skipped the fine print where I'm sure it would say something similar to "12% from 1980 - 1990". That would be very feasible since there was a 10 year period that I remember in which the S&P 500 produced a large return. But, certainly not for any great length of time and most definitely not since its inception back in 1957.

I've presented the FACTS and the EVIDENCE to back up my argument. Do your best to disprove it. I'll buy you lunch if you're able to.

Now then, the argument could justifiably me made that after discounted for inflation (3.5%), the S&P has done much worse. The only thing that is difficult to ascertain regarding the return of the S&P 500 is the dividends the companies paid out that were represented in the S&P 500. Unfortunately the S&P 500 changes and sometimes changes often so its nearly impossible to know this information. Knowing that, the return of the S&P 500 could be higher than 5.50% but I would hardly doubt it would have been by much.

@ /RW

Mutual Funds are a waste of money and rarely outperform a good Index Fund. An ETF Index Fund is even better.

@ RWH who wrote:

"According to:

The S&P 500 averaged 10.6% return from 1926-2007. This is not "real" return, i.e. inflation-adjusted. It also doesn't include the drop after 2007."

RWH, The S&P 500 wasn't in existence in 1926. You should seek out credible sources for your information such as Wall Street Journal, Financial Times, Forbes, etc. Certainly not the site you've referenced. I went to that site at its appalling to me that they would give such blatant disinformation. As I noted earlier, the S&P 500 debuted on March 4th, 1957. Standard & Poors introduced its first stock index in 1923 but it wasn't the S&P 500. It was called the S&P 90. The S&P 500 did exist in 1950 but it was much different that the final S&P 500 which we follow today. That one wasn't created, as I've stated, until March 4th, 1957 and that is the date you would have to start the measurement from in order to get an accurate and correct reading.

As a side note, If you were to measure the total performance of the Original Jan. 3rd, 1950 S&P 500 to Jan. 2nd, 2009; your Averaged Annual Return would be 6.78%. Still not even close to 12%. Of course you wouldn't measure the S&P 500 from 1950 because it isn't the same index as the 1957 index. The 1957 index is the same as what we use today.

The average investor approximately 35 years to invest. If that statement is true for you as it is historically for most then the S&P 500 should be measured in that regard. If we measure it from April 29th, 1974 (it was closed on April 28th, 1974) - April 28th, 2009: we measure from the two closing prices of 90.00 - 855.16 which produced an Averaged Annual Return of 6.64%. Still not relatively close to a 12% Return.


The average investor HAS approximately 35 years to invest. If that statement is true for you, as it is historically for most, then the S&P 500 should be measured in that regard. If we measure it from April 29th, 1974 (it was closed on April 28th, 1974) - April 28th, 2009: we measure from the two closing prices of 90.00 - 855.16 which produced an Averaged Annual Return of 6.64% over that 35 year period. Still not relatively close to a 12% Return.

Jim: You have me confused with /RW. I never made the claim the historical average of the market was 10-12% per year. I did provide two links that I thought were credible regarding the subject.

I do stand corrected on the 1926 error regarding the S&P 500. Thanks for pointing it out.

Anybody have an opinion on the following? I work for a bank (operations area, i'm no investment wiz) and I can only choose from the following companies for investing due to our corporate trading policy:
JPMorgan Securities Inc, Bear Stearns, Chase Investment Services Corp, Charles Schwab, E*Trade Financial, Fidelity Brokerage Services, Merrill Lynch, or Smith Barney.
Do any of these companies stand out as better than the other? I would like to begin investing in index funds which I often see recommended, but Vanguard is not a choice for me. I thought this article would help but with all the comments i'm only more confused. Is any of the information in the article worthwhile? Thanks.


The only company I have any experience with is Schwab. I have been satisfied with their service, but do most of my business with Vanguard. The reason I chose Schwab was I inherited an IRA and my hope was it would grow to over 100k in a few years and I could then transfer it to Vanguard and receive some premium services they offer for a minimum of 100k new money.
Of course, I have lost money in the market since I opened with Schwab, and even though I chose index funds they still have higher fees than Vanguard.

I know that's not exactly a ringing endorsement.

Rwh - Thanks for your input. Looks like I have a lot of research to do!

Christy, I would suggest you find out what the fee's are for each broker. In my many years of investing both on a personal level as well as a professional level, I have never found a staggering difference in service between brokerage houses. They are all going to provide relatively similar services to you. What the important factor to weigh then is price. How much do they charge to place a purchase order? How much do they charge for a sell order? Is there an additional annual fee? Can I trade online? How much more does it cost me to buy and sell over the phone using one of their brokers? This is the basic information you need to know. Whoever is the least expensive is who you'll want to do business with. This is very easy information to obtain through the person that handles your investment program at work. If that person doesn't give you adequate information (i.e. doesn't know) then call each individual company and ask them this information and then go to your superiors and request that the person that handles your company's investment program be fired for incompetence. That person should absolutely know this kind of information otherwise he/she is not doing their job. Each one you've mentioned is very reputable so it all comes down to price. Pick the lowest price.

Good Luck.

Christy, By the way, a Index Fund is the perfect investment for you and now is the perfect time to get one. You'll get a very nice return over a long period of time and you won't have to constantly monitor it. It's for people with limited investment knowledge and limited time on their hands. But, it allows them to receive a very good return on their money and most often times better than what a standard mutual fund has ever/could ever return. It also beats out most stock picks. So, you're thinking is on the right track with an Index Fund. I would find one that models the S&P 500. Goodluck.

Christy, One more thing. An Index Fund ETF is even better. Symbol IVV or Symbol SPY would be two good recommendations for you. Either one would be a good choice for you. They both do the same. Only difference, they are from two different companies. Don't purchase both of them. Just one of them.

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