Market

MADNESS

DYI:  Any wonder why DYI has been so negative when it comes to the U.S. stock market.  I’d hope not.  Valuations have simply gone into the stratosphere.  If you have just joined the work force and putting money away for retirement (IRA, 401k, etc.) even with 40 years of work ahead stocks at these valuations is a disaster. 

Going to MoneyChimp.com placing in 38 times earnings (Shiller PE) and Standard and Poor’s dividend yield of 1.3% going out 40 years your estimated average annual return will be – drum roll please – a scant 4.05%!  This is a nominal return before costs such as management fees typically around 1%, trading impact cost 0.50%, commissions for trades passed onto the shareholders 0.25% AND of course the biggest cost INFLATION – best guess around 4%.  That is a negative 5.75% drag on your REAL return by simple arithmetic – [5.75 minus 4.05 equals a negative 1.7% return]…So…This is an awful time to be purchasing U.S. common stocks on a whole sale basis such as a S&P 500 index fund or a general growth fund so prevalent in 401k’s or IRA’s.

Till Next Time!       

DYI