It's 1929. You are 30 years old. At the very nadir of the Great Depression - the very bottom point in that big economic chart I'm sure we've all seen - you invest some money in the stock market. Your stock choices are typical and representative - you have no particular great insight except that you're sure the economy has no where to go but up. You sit on your portfolio for 35 years until you retire at age 65, when your portfolio provides you with enough income to live at an average middle-class standard of living until you die at age 100.
Is this a feasible situation? How much money would you have to have invested initially? How much would that be in today's dollars?
3 comments:
I think it's feasible, but you would have to had unusual nerve to invest money in the stock market at that point in history.
For one thing, the 1929 crash was not the low point of the market--that did not happen until 1932 and if you had invested in the meantime, you might have lost most of your money.
(See the accompanying linked page)
Look at the bottom of the linked page--the Dow Jones average was at 230.07 at the close of the day (Oct. 29) of the crash in 1929...it went to just 41.22 on July 8, 1932--after several "recoveries" that turned out to be false starts.
Insight seemed hard to come by. Before the crash some investors formed pools to intentionally hype certain stocks. People would buy in because everyone else did. The starting investors would bail out and then it become sort of musical chairs, the last people to play would be left holding the bag as the stock dropped far and fast.
But it's definitely possible to luck out and have enough income to last for years.
Here's a stock I know of (actually own some, but 1960 was before I was born):
A $10,000 investment in Allied Capital in 1960, at the time of our IPO, with all dividends reinvested, would have been worth $20.2 million at December 31, 2005, representing a 18.0% average annual total return for our shareholders.
http://www.alliedcapital.com/who/index.asp
So that's feasible...but who had even heard of Allied Capital in 1960, much less had the foresight to invest in it? Feasible, but probably not very realistic as practical matter, IMO.
That's interesting. I always had this vague idea that if the great depression ever happened again, I'd take like $1,000, buy and hold, and become rich. Sounds like that's less feasible than I thought. If I'm understanding how these stock market points work, to make $1,000,000 today, I'd have to invest $3,500 in 1932. However, if you calculate for inflation:
http://www.bankofcanada.ca/en/rates/inflation_calc.html
$3,500 in 1932 is like $50,000 today. Which is far more money than a person young enough to get rich by buying and holding would have free to experiment with during an economic crisis.
(I know I'm crossing Canadian and American dollars here, but the differences over decades aren't significant enough to worry about here.)
$3,500 in 1932 is like $50,000 today. Which is far more money than a person young enough to get rich by buying and holding would have free to experiment with during an economic crisis.
Yeah. I think a young person in either decade would find it difficult to set aside that kind of money (and the many needs and wants it might be used to fulfill in the present), even if there was a good likelihood it might grow enough to make them rich (or at least rich by their current standard) 40 or 50 years down the road.
That the stock market is far from a sure thing and that economic crisis would probably make you want to hold onto every dollar would only add to the reluctance, I think.
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