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Had You Invested on the Last Day of September, 1929…

By JLP | October 31, 2008

Had you been unlucky enough to have invested $100 in the S&P on the last day of September, 1929 and held on to your shares, it would have taken you 184 months (or 15.33 years) to get back above your $100 investment. Check out this graph to see what I mean:

Not counting inflation, your annualized rate of return over those 15.33 years would have been a whopping .12% (and that includes dividends)!!!!! How so? Well, here’s the math:

Beginning Value = $100.00
Ending Value = $101.83
Number of Years = 15.33

(($101.83 ÷ $100.00)1/15.33) – 1

1.0183.0652174 – 1

1.0011834 – 1

.0011834 or .12%

Now, had you held on for 20 years (through September 1949), your average annual rate of return would have increased to 2.03%. Wait another 5 years and your average annual ROR increases to 5.93%, which is respectable considering just how bad things were.

In this particular case remember: Stocks for the really long run!

Topics: Investing, Miscellaneous | 11 Comments »


11 Responses to “Had You Invested on the Last Day of September, 1929…”

  1. EnoughWealth Says:
    November 1st, 2008 at 1:36 am

    Yes, but who in their right mind would invest 100% of their total investible funds on ONE particular day? If you had invested $10 each September from 1929 to 1939 the picture would be a lot different. Such examples are eye-catching but not realistic enough to provide any useful insight.

    It’s a bit like the example often quoted to discourage people from trying to “time” the market. “If you were out of the market for just the 10 best days in the past ten years your average return would drop from 10% to only 3%…” (or whatever the figures are for the period you choose to look at). The trouble with that example is that NO-ONE could possibly be unlucky enough to be out of the market for just ten days out of a multi-year period and just happen to miss out on all the very best days! You might as well consider how fantastic your return would be if you missed out on just the ten worst days in the same period…

    If I had invested all my money in the stock money at it’s peak last December I expect my returns over the next 10, 15 or 20 years would look pretty tragic. But, in reality, I invested a minimal amount into the market last December (just some regular monthly retirement savings). My stock investment has been accumulated over more than twenty years, and I’ll keep investing in the market for the next 15 years or so while I keep working. So my annualised return in 10, 15 or 20 years time will most likely be quite OK, despite the recent market tumble.

  2. EN Says:
    November 1st, 2008 at 2:38 am

    ^It was just a fun example…..

  3. JLP Says:
    November 1st, 2008 at 7:48 am

    EnoughWealth,

    The POINT of this was just how long it took to recover from the ’29 crash.

    I’m already planning a follow-up that looks at dollar-cost averaging over the same time period.

  4. Andy Says:
    November 1st, 2008 at 9:34 am

    Sure, but most people don’t have 100% equities. I believe for something like 80/20 or 60/40 the number of years drops a non-negligible amount.

  5. QJC Says:
    November 1st, 2008 at 10:40 am

    OK, so that’s a nice worst case scenario. Scary only IF someone actually could do this. Now how about positing something more along the way people really invest – that is to say at least annually, or most commonly through automatic investment plans like 401(k)s and IRAs taken out over time. What’s the scenario for investing a fixed amount of $10, say, from 1920 through 1940, eh?

  6. JLP Says:
    November 1st, 2008 at 10:43 am

    QJC,

    I guess you didn’t see my comment #3.

  7. Tim Says:
    November 1st, 2008 at 5:27 pm

    I really find it odd that people like to fixate on one moment in time analysis. All of this presumes that you aren’t continuing to invest your money over time. the point isn’t how long it will take to recover the $100 initial investment, because if you continually invest, that loss in the $100 will decrease with continued investments. so this is again another argument for dollar cost averaging.

  8. Finance Junkie Says:
    November 1st, 2008 at 7:27 pm

    Ok, to the person who mentioned dollar cost averaging. If you dollar cost averaged for two years starting on the last day of September 1929. You would still have a negative return on your money 13 years later in Sep 1942 (based on chart above).

  9. fivecentnickel.com Says:
    November 2nd, 2008 at 9:43 am

    Glad to hear that you’re planning a DCA followup, because stats like this are totally unrealistic for “real” investors who continue adding to their positions over the long term.

  10. Julia Says:
    November 2nd, 2008 at 5:43 pm

    Is your next post going to tell us what our return would be if we invested at the lowest point in 1932? If you only invested at the peak of the market, then it took 15 years to “recover”. I don’t know many people who invested all their money at once at the peak of the market (or at the low point in the market).

  11. Tim Thompson Says:
    November 2nd, 2008 at 11:25 pm

    If you look to the S&P more recent past it has not faired to well in simular times. What you say might be true in a few years but you might end up waiting for a while…

    http://stocktruth.com/chart.php?symbol=%5EGSPC

    2001 has a nice turn around, but even this year (march 2008) we saw a nice return just to fall again.

    I would give it a few more months before I felt that we are at ground zero…

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