Gyroscopic Investing

Just read the following article at Fool.com.  

http://www.fool.com/investing/dividends ... tth0000001

Basically says that the S&P did fine over the past year decade, and that, if you count dividends, it's up around 43%, on the decade.  That's basically 4.3% annually, which isn't too bad during a deflationary period.

Is this true?  

Over the last 12 months I think that is obviously not true.

MediumTex wrote: Over the last 12 months I think that is obviously not true.

Sorry, MT.  I mis-typed...edited above.

That's because the further we go into 2011, the further 2001's crash becomes gains for us.

It'll continue into 2002.

First off, the author is using a linear chart, which is a poor way to compare long term data. Logarithmic is preferred for long term comparisons, since equal vertical distances anywhere in a logarithmic chart represent equal percentage changes in return.

Second, the chart conveniently omits the August 2011 downturn, nor does it account for general inflation. Now, even if you didn't pay any taxes, you still would have lost money in the S&P 500 since March of 2000:

http://politicalcalculations.blogspot.c ... -time.html

...Set the S&P 500 calculator to a start data of March 2000, and start with $1000 with $0 added each month. Press calculate and, drumroll...

With dividends fully reinvested (i.e. no taxes) and after adjusting for inflation, you would have lost -$137.73, which is a -1.32% Average Annual Rate of Return.

When you factor in taxes on each of those dividends, you did even worse. That's what they mean when people talk about a lost decade. Many investors defend the lost decade by saying that balanced portfolios did much better — which is true — but those portfolios tended to be very volatile in 2008, with about 25%-30% declines at times. I'm not sure there are too many people who have stuck to any plan over the past decade.