Value of One Dollar 1925 - 1999

If it was possible to invest one dollar, $1.00, on January 1, 1925, in either the small cap stock index, large cap stock index, long term bonds, or short term bonds how much would it be worth? Obviously, it is not possible to invest just $1.00 and this is given to illustrate which investment gives the best long term growth. This data comes from the book titled Investments by Bodie, Kane, & Marcus.

Seventy five, 75, years later on December 31, 1999 here is how the numbers come out:

Due to inflation: $9.40 on December 31, 1999 is equal to $1.00 on January 1, 1925. This is needed to calibrate the results of these four investments.

Short term bonds beat inflation slightly and equals $15.41.

Long term bonds did better than short term bonds and equals $38.58.

The large cap stock index, S&P 500, had a value of $2,481.87

The small cap stock index, Russell 2000, had a value of $6,382.63.

A couple of points:

1. Saving just $1.00 when invested for the long term can make a difference.
2. Long terms investments get better growth with stocks than bonds.
3. Bonds do a better job of stability rather than growth.

Investing 2000 - 2006

What can we learn from Investing 2000 - 2006? The table below shows the performance of a small cap stock indes and a large cap stock index during the 7 year period of 2000 - 2006 as found using internet sources. This period had the tech bust, Soldiers in Iraq and Afghanistan, relatively normal inflation and interests rates. Did anyone make money during this period? What investment did the best?

If $1,000 was invested on January 1, 2000 here is how the numbers came out:
Small Cap Stocks = $1,546
Large Cap Stocks = $966

So far this decade Large Cap Stocks has the worst performance. Below is a table of the value of the $1,000 investment at the end of each year.

Year /Small Stocks /Large Stocks
2000 /958 /899
2001 /967/782
2002 /758 /599
2003 /1,102/758
2004 /1,291 /826
2005 /1,330 /850
2006 /1,546 /966

It will be interesting to see how these investments perform for the rest of the decade. The past suggests that large stocks will rise above the $1,000 value by the end of 2009. It is not possible to predict the future value of an investment and diversification can smooth out some risk.

Investing in the 90's

What can we learn from Investing in the 1990's? The table below shows the performance of small cap stocks, large cap stocks, long term bonds, and short term bonds during the 10 year period of 1990 - 1999, as found in book titled Investments by Bodie, Kane, and Marcus. This period had relatively normal inflation and interests rates. Did anyone make money during this period? What investment did the best?

If $1,000 was invested on January 1, 1990 here is how the numbers came out:

Small Cap Stocks = $3,654
Large Cap Stocks = $5,325
Long Term Bonds = $2,282
Short Term Bonds = $1,631

Stocks did very well in this decade. Large cap stocks came in first followed by small cap stocks. Long term bonds came in a distant third and short term bonds had the lowest return.

Below is a table of the value of the $1,000 investment at the end of each year.

Year /Small Stocks /Large Stocks /Long Bonds /Short Bonds
1990 /729 /968 /1,071 /1,079
1991 /1,096 /1,265 /1,268 /1,140
1992 /1,401 /1,362/1,367 /1,180
1993 /1,685/1,497 /1,579 /1,215
1994 /1,629 /1,516/1,465 /1,262
1995 /2,169 /2,088 /1,929 /1,333
1996 /2,527 /2,569 /1,914 /1,406
1997 /3,093 /3,422 /2,202 /1,481
1998 /3,014 /4,400 /2,500 /1,557
1999 /3,654 /5,325 /2,282 /1,631

OBSERVATIONS:

1. Stocks gave the best return
2. Stocks had the most volatility
3. Bonds did a better job of providing account balance stability
4. Stocks need to be held with a longer term perspective
5. You can not time the market
6. Stocks had more up years than down years
7. Long term bonds lost money 2 of the 10 years, so it is possible for a bond to lose money
8. Short term bonds never lost money in a year

Stocks had similar returns in the 1990's as the 1980's. The lower interest rates and lower inflation rates of the 80's gave better stock returns than during the 70's. It is important to know what you want your investments to do and act accordingly. It is not possible to predict the future value of an investment and diversification can smooth out some risk.

Investing in the 80's

What can we learn from Investing in the 1980's? Will the same trends in the 1940's, 1950's and 1960's return in the 1980's?

The table below shows the performance of small cap stocks, large cap stocks, long term bonds, and short term bonds during the 10 year period of 1980 - 1989, as found in the book titled Investments by Bodie, Kane, & Marcus. During this period, interest rates and commodity prices returned to more normal levels. Did anyone make money during this period? What investment did the best?

If $1,000 was invested on January 1, 1980 here is how the numbers came out:

Small Cap Stocks = $3,250
Large Cap Stocks = $5,059
Long Term Bonds = $2,971
Short Term Bonds = $2,368

With the interest rates dropping, the return for stocks and bonds did very well. Large cap stocks came in first with small cap stocks & long term bonds essentially equal. The lower inflation rate helped stocks.

Below is a table of the value of the $1,000 investment at the end of each year.

Year /Small Stocks /Large Stocks /Long Bonds /Short Bonds
1980 /1,353 /1,325 /1,132 /1,116
1981 /1,459 /1,259 /1,173 /1,282
1982 /1,859 /1,537 /1,249 /1,420
1983 /2,500/1,881 /1,242 /1,546
1984 /2,150 /2,002/1,432 /1,700
1985 /2,769 /2,643 /1,900 /1,834
1986 /2,863 /3,129 /2,356 /1,947
1987 /2,464 /3,296 /2,293 /2,054
1988 /2,999 /3,852 /2,486 /2,186
1989 /3,250 /5,059 /2,971 /2,368

OBSERVATIONS:

1. Stocks had much less volatility than the 70's
2. Bonds did a better job of providing account balance stability
3. Stocks need to be held with a longer term perspective
4. You can not time the market
5. Stocks had more up years than down years
6. Long term bonds lost money 2 of the 10 years, so it is possible for a bond to lose money
7. Short term bonds never lost money in a year

The trends of the 1940's , 1950's, & 1960's returned for stocks in the 1980's. The lower interest rates and lower inflation rates of the 80's gave better returns than during the 70's. Thankfully, we are not in a high interest rate and high inflation period.

It is important to know what you want your investments to do and act accordingly. It is not possible to predict the future value of an investment and diversification can smooth out some risk.

Investing in the 1970's

What can we learn from Investing in the 1970's? Will the same trends in the 1940's, 1950's and 1960's hold true in the 1970's?

The table below shows the performance of small cap stocks, large cap stocks, long term bonds, and short term bonds during the 10 year period of 1970 - 1979, as found in the book titled Investments by Bodie, Kane, & Marcus. This period includes high interest rates (20% interest rates on mortgages), high commodity prices ($2.00 gas and $800 gold) and stagflation. Today, the interest rate for mortgages are lower and commodity prices have rebounded with gold about $800. Did anyone make money during this period? What investment did the best?

If $1,000 was invested on January 1, 1970 here is how the numbers came out:

Small Cap Stocks = $2,314
Large Cap Stocks = $1,774
Long Term Bonds = $1,900
Short Term Bonds = $1,840

With the high interest rates, the return on bonds got much better. With the high inflation rate during this period the increases in bonds just kept up with inflation. Small cap stocks came in first with large cap stocks, long term bonds, and short term bonds essentially equal. The high inflation rate sure did change the trend from the 40's, 50's, and 60's.

Below is a table of the value of the $1,000 investment at the end of each year.

Year /Small Stocks /Large Stocks /Long Bonds /Short Bonds
1970 /835 /1,041 /1,127 /1,065
1971 /989 /1,189 /1,324 /1,111
1972 /982 /1,416 /1,397 /1,154
1973 /584/1,207 /1,417 /1,233
1974 /410 /888/1,495 /1,331
1975 /696 /1,219 /1,622 /1,408
1976 /1,077 /1,512 /1,802 /1,480
1977 /1,314 /1,402 /1,818 /1,555
1978 /1,607 /1,493 /1,742 /1,666
1979 /2,314 /1,774 /1,900 /1,840

OBSERVATIONS:

1. Stocks had a lot of volatility during this high inflation period
2. Bonds to a better job of providing account balance stability
3. High inflation is not good for stocks or bonds
4. Bonds had better returns with high inflation
5. Stocks need to be held with a longer term perspective
6. You can not time the market
7. Stocks had up and down years
8. Long term bonds lost money 1 of the 10 years, so it is possible for a bond to lose money
9. Short term bonds never lost money in a year
10. Small cap stocks had more volatility than large cap stocks

The trends of the 1940's , 1950's, & 1960's did not hold true in the 1970's. The high interest rates and high inflation rates sure did change the trends. Thankfully, we are not in a high interest rate and high inflation period. Investors in bonds had stability. It is important to know what you want your investments to do and act accordingly. It is not possible to predict the future value of an investment and diversification can smooth out some risk.