Explaining Southern California's economy

Dow 13,000? Not this year, but that's OK

Mercer 620

Spencer Platt/Getty Images

The final day of trading on the stock markets had ended. The Dow closed down about 70 points. But let's take a look back on 2011, a volatile economic year if there ever was one. For the year, the DJIA was up 5.6%, despite all the turmoil. If you had put $1,000 in an index fund that tracks the Dow, you would have made fifty-six bucks! More importantly, you would have stayed ahead of the rate of inflation or about 3.4 percent. So your return would have legitimately increased your wealth.

For comparison, you would have had a tough time getting even 1 percent on a 12-month CD. 

This doesn't factor in dividends — the money you get paid to hold a company's stock — and if historical averages are anything to go by, simple stock price appreciation in the Dow suggests that a percentage slightly below 5 percent is to be expected (although there will be both much better and much worse years). So in the end, 2011 beat the historical return and beat the rate of inflation.

And this was when many thought we were going to fall into another recession.

Ok, so all the volatility wasn't for the weak of will. But if you were a patient investor, unswayed by the wild daily ups and downs and all the worrisome news, you banked a profit. OK, so we didn't hit Dow 13,000. But there's always next year.

Let this be a lesson to us all.

Follow Matthew DeBord and the DeBord Report on Twitter.

blog comments powered by Disqus