Hey there! I’m Aren, and today I will be talking about What stock market returns are
how market returns are tracked
What market returns generate in the short run and long run
How important it is to stay invested if you have a long time horizon
Why and how much I am invested in them
And how much in fees they would typically cost.
But before I talk about what stock market returns are,
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In addition, this video is strictly for informational purposes only,
It is also important to note that the past performance we show
is neither a guarantee or indicative of future returns,
You may also sustain heavy losses, like right now, so before investing,
you should do your own research
and consult with a financial professional
to verify the information presented is accurate.
And with that out of the way, lets discuss.
The stock market return typically follows the S&P 500 index.
The S&P 500 index is comprised of 500 large US Companies.
It is based on market cap,
Meaning the bigger the size of how investor value the company
The more impact it will have on the index’s performance
The S&P 500 performance represents the market’s return
And using Robert Shiller’s data that stretches back to 1871
the market’s annual return averages around 7% to 11% in the long run in nominal terms.
Nominal means that these returns don’t take into account
how inflation has lowered the value of money through time
But it is important to note, that this is not a consistent return in the short run.
Rolling one-year returns, can range from a -62% loss to a 140% gain.
So returns can vary widely in the short run.
In the long run however, annualized returns get closer to the average returns,
Rolling 30 year returns for instance, can have annualized returns between ~4% to ~14% per year.
So the longer your time horizon, the higher your chance of winning.
Even had you invested during the top before the Great Depression in 1929
And suffered an ~82% loss of your money in the following 3 years after.
As long as you kept it invested up to today in the S&P 500,
you would have still earned a nominal annualized return of 7% per year for the next 90 years.
So a $10,000 investment at the worst time in stock market history in 1929
would still be worth ~5m in 2020.
So it is always a good idea to stay invested, as long as you have a long time horizon.
With that said, 35% of my net worth or roughly $135,000
is invested in an S&P 500 mutual fund through my 401k.
And this is because when I was younger,
1. As discussed the returns were already pretty amazing by itself
2. I was still learning how to invest in individual stocks
3. And because my options are either expensive or limited in my 401k.
Out of all my limited options in my 401k,
I selected the Vanguard 500 Index Fund Admiral Shares or ticker symbol (VFIAX)
Simply because of the lower fees,
In terms of fees, the index only charges you 0.04%.
This means that a $10,000 investment will only cost you $4
Fun Fact: This is less than 1 rotisserie chicken in Costco.
Other funds would typically charge 25 times that amount at $100.
So at $4 you are getting a bargain!
But VFIAX requires $3,000 as a minimum investment.
Vanguard does have an ETF that removes that requirement and still mimics the S&P 500 index returns
The ETF is listed as ticker symbol VOO and charges a lower fee at 0.03%
So this represents a better deal!
VOO closed at ~$256 in April 9
Anyways, I hope you learned a great deal for free!
All I ask in return is that you
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