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The Dow Jones Average is a useful measure for uninformed daily newscasters to mention instead of real business news.

My pension fund (which is very broadly based, but not an "index" fund) has now slightly exceeded its prior high from 2001. It's ten year average return is about 8% which is typical for the stock market over long periods of time. This is, of course, not adjusted for inflation. If it were the real return would be more like 4%.

I've written many times on how the best the stock market can do over long periods of time is population growth+productivity growth+inflation. This has been somewhat violated over the past 30 years since wealth has been extracted from the working class (in the form of wage and earnings stagnation) and shifted to the investor class (in the form of higher corporate earnings).

This has now pretty much reached an end. The last major US sector (autos) is now being de-unionized. After this there will be very few ways to extract more work for less pay from people. The median family already has a negative savings rate. The next step will be a decline in standard of living which will produce a drop in demand as well.

The pursuit of unrealistic returns has meant that increasing risky forms of investment are being used. Even pension funds are trying to make 10% a year and thus investing in junk bonds and hedge funds. This will all end unpleasantly. The only question is when.

Here are a couple of my previous essays on the topic:
Wealth without Work

Coming Crash

I suppose it is in the nature of things that the young are optimistic and the old not, but even the optimistic and idealistic should study history so as to gain a sense of balance.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sun Oct 8th, 2006 at 09:35:34 AM EST
returns over the truly long run in the American stock markets have been 10% nominal with inflation of about 3%, for a real return of about 7%.  This is from data I saw in the 90"s.

Returns from the last 20 years have been far higher, as Jeremy Siegel"s recent WSJ article showed:

Since 1980, the return on Dow industrials has averaged 13.89% per year, significantly above the 13.06% recorded for the S&P 500, a benchmark that many active money managers find difficult to beat.
The S&P 500 would be the better judge of the market as a whole (though historically small cap stocks have outperformed).  But inflation has likely been less than 3% since 1980, so the return over this time frame is abnormally high in real returns,,,,about 10%.
by wchurchill on Sun Oct 8th, 2006 at 03:24:46 PM EST
[ Parent ]
I have a bridge I'd like to sell you...

Policies not Politics
---- Daily Landscape
by rdf (robert.feinman@gmail.com) on Sun Oct 8th, 2006 at 03:38:10 PM EST
[ Parent ]
Thanks, but my investments are doing very well, and I don't know bridges.  you might try the bridge blogging people on this site.
by wchurchill on Sun Oct 8th, 2006 at 04:07:52 PM EST
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Another incredibly intelligent response.  One does wonder how you put up with we filthy proles....

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Oct 8th, 2006 at 05:10:17 PM EST
[ Parent ]
We take pity on the intellectually handicapped...

Policies not Politics
---- Daily Landscape
by rdf (robert.feinman@gmail.com) on Sun Oct 8th, 2006 at 06:16:33 PM EST
[ Parent ]
My, my.  Someone had his Wheaties this morning.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Sun Oct 8th, 2006 at 07:34:22 PM EST
[ Parent ]

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