Dow 150K - You're Gonna Need It

[dixonge]

An interesting article - not actually click-bait. Be in it for the long haul...

Why you’ll need Dow 150,000 to retire comfortably - MarketWatch

 

[Aerides]

I tried reading it, but in internal-editor started cringing too much.

 

[pb4uski]

I guess that math is hard for some people. While it is true that if the Dow index grew at 7.25% that it would double every 10 years or so, for a currently 50 year old planning to retire at age 60 that would be 37,500, not 150,000 as stated in the article. The 150,000 would be for 30 years, so applicable to a 30 year old, not a 40-50 year old.

He says that the 7.25% is below historical averages which means he is looking at returns with dividends reinvested... but if he is computing index levels then he needs to use the returns for the market index, not with dividends reinvested. For 1940-2016 the average annual returns were roughly 6.8%% and 11.0% for the index and with dividends reinvested, respectively.... so if he is haircutting the historical return from 11% to 7.25% then the return of the index needs to be haircut as well... to say, 4.5%... which would change the 150,000 DJIA to ~70,000.

In fact, if you’re a 40- or 50-year-old investor, planning for a comfortable retirement and hoping for a lifetime of reasonable returns, you need the Dow Jones Industrial Average DJIA.... hit 150,000, and the S&P 500 Index SPX... blow past 15,000.

With an average annualized return of 7.25%, the Dow moves from roughly 18,750 to 37,500 in a decade, then doubles to 75,000 in 2036, before reaching 150,000 in 2046.

That 7.25% return is well-below the market’s historical long-term average, but is a necessary concession to the idea that the coming decades for the market won’t be as rich as the past century.

 

[NW-Bound]

Good catch on the divvies being counted twice to bring the Dow to 150,000 in 30 years.

I will be dead before I see it, but if people really need Dow 150K to retire, heck I would invest in Purina. Well, I would also diversify into Fancy Feast and some other brands to be safe.

 

[RISP]

I guess that math is hard for some people. While it is true that if the Dow index grew at 7.25% that it would double every 10 years or so, for a currently 50 year old planning to retire at age 60 that would be 37,500, not 150,000 as stated in the article. The 150,000 would be for 30 years, so applicable to a 30 year old, not a 40-50 year old.

He means "during the lifetime of a 40-50 year old", not "by the time a 40-50 year old plans to retire". This is stated pretty clearly in the article. And it makes perfect sense: If you are 50 today, 2046 is within your remaining life expectancy (https://www.ssa.gov/oact/STATS/table4c6.html ), and you certainly need adequate returns also during your retirement years if you want to live off your portfolio. Whether "adequate returns" means an average 7.25% annually can of course be debated. Since that's before inflation, and with fixed income earning next to nothing, I personally do not think it's excessive, unless you plan on a very conservative WD rate.

Good catch about dividend reinvestment, though.

 

[ExFlyBoy5]

I'm sorry, but Marketwatch is the epitome of click-bait. I have highlighted some of the examples here.