Explaining Southern California's economy

Your best investment for 2012? It might have been...Apple!

The markets have put 2012 behind them. It was an exciting year. It was a crazy year. It was a maddening year. And if you invested in stocks, you probably made money.

Apple did briefly slip the surly bonds of Earth and touch the face of financial gods in 2012, busting through $700 a share and coming within striking distance of a $1 trillion market capitalization. It closed out 2012 on a strong note, up almost four and half percent, to $532.17.

If you'd bought a single share at the beginning of the year, you'd have seen a better-than-31-percent return on your investment.

That was more than double the S&P 500's return, a very respectable 13-plus percent, and much better than what the Dow managed, a mere 7.25 percent (which, it should be noted, is still more than three times the rate of inflation, currently running at about 2 percent). 

Now, if you wanted that Apple return, you'd have been forced to endure some knee-knocking volatility — and you might be cursing yourself for not selling when the stock was trading at its yearly high.

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Easy choice: Money and no job, or a job and no money?

DJIA-All-Time

Federal Reserve

Ever long for the days of Dow 1000? If you have a job but no money, maybe you should.

Felix Salmon has a great post today about, basically, why we need to tax capital gains at a higher rate. I made a rare Tuesday appearance on "America Now" — the radio program hosted by the always lively Andy Dean, with whom I usually discuss and debate economics and business on Fridays — and wound up talking about this very topic, as it relates to Mitt Romney's taxes. 

In a nutshell, capitals gains is income derived from investment returns — selling stocks and bonds, or collecting dividends, that type of thing. The argument in favor of keeping them lower than income tax is that people with money to invest, i.e. the affluent, need an incentive to keep investing. The idea is that a virtuous circle will be created, with investment creating jobs and jobs creating income and that income being invested, by people who wouldn't otherwise invest. Presto! Economic growth!

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

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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.

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