Given enough time, the stock market index ( the DOW) grows exponentially.
For example multiply ten by 1 you get 10. Multiply 10 by 2 you get 100. Multiply ten by 3 you get 1000. If by 4 you get 10,000. If by 5 you get 100,000.
That’s how the Dow is growing.
For example, in 1906 the Dow reached 100. In 1972 it reached 1000. By 1999 the Dow hit 10,000. By 2017 it hit 20,000. But 20,000 is not exponential growth. It’s good, it’s crazy good, but it’s not exponential growth. 100,000 is exponential. And god willing and the creek don’t rise, that’s where the Dow is heading. Even if the creek rises that’s where the Dow is heading.
I started personally investing in stocks around 1970. For forty seven years I’ve been following the Dow. I hurt when the Dow goes down, but I’ve learned that it comes back and goes up over time. And lately I’ve figured out that over the last 117 years the Dow follows an exponential growth pattern. At times it goes up a bit, other times it seems caught in a holding pattern, and you can count on it going down, but overall, its true trajectory is exponential.
When will the Dow reach 100,000? The average of the years between 1906 and 1970, and 1970 and 2000 is forty five years. Subtract seventeen from forty five, you end up with twenty eight years.
So somewhere around 2045, the Dow might be close to 100,000. It’s now 2017, so there’s a possibility that the Dow will be close to 100,000 in the next twenty eight years. This reminds me of the oft quoted bit of financial wisdom, ” patient money always wins, fast money always loses.”
Still too long to wait? Cut twenty eight years in half, and you have fourteen years. The Dow could be close to 50,000. Gosh I’ll even still be around in fourteen years. (That’s my goal. My philosophy is that the longer you live, the longer you will live.)
The message is clear: if you are disciplined and invest in stocks that are represented on the Dow, you will be well off financially.
By the way, will the Dow grow to one million? What is ten multiplied by 6? One million. How long will it take to reach 1,000,000? Somewhere around 2100. My grandchildren will still be around, and my great grandchildren will be in their prime.
Will the world be around in 2100? Of course it will. Will it be warmer? Yes. Will a nuclear bomb be set off? Maybe, but probably not. Will it kill everyone? No. By the way, the population begins to level off around 2050. People will on the average be living close to one hundred years.
What would stop the Dow from reaching 100,000? Not much. From 1900 to 2017 when the Dow went from 100 to 20,000, we went through WW1, WW2, the Great Depression, the Great Recession, the assassination of a president, the impeachment of another, and the resignation of a third, the September 11, 2001 attack on the World Trade Center and the Pentagon, the Korean War, the Iraqi and Afghanistan wars, the AIDS epidemic, the civil rights riots, the Vietnam War, jihadi terrorism, polio, the Cold War, Sputnik, the Arab oil embargo, flaming inflation, atom bombs dropped on Hiroshima and Nagasaki, flood than nearly wiped out entire cities in Louisiana and New Jersey, etc. We’re still here, and the Dow continues to grow exponentially.
Have I accounted for inflation? For one, Inflation hasn’t exceeded 2% since 1989, far below the annual average rate of growth on the Dow. Next, when the Dow over time grows exponentially, it outruns the effect of inflation.
Cautions: unless you are a professional trader, don’t indulge in speculating on just one stock. Diversification is the only free lunch in investing. Plus, insure that you have a broker who looks after your portfolio, who preferable is a female. Have some bonds and alternative funds, but don’t go below 60% in stocks.
In contraction cycles, you’ll end up making somewhere around six percent over time, and in growth cycles, you should average over time about thirteen percent. When it all averages out, you’ll make somewhere around between nine and ten percent annually on your money.
So if you invest one thousand dollars in 2017, and add one thousand dollars a year over
the next twenty eight years, you will have twenty eight thousand times ten percent growth plus compounded interest growth. It will be well over one million dollars.
These are my observations as an investor. I am not a licensed financial planner, but all of the above is what I’m telling my children and my grandchildren.