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The Daily Dow LEXINGTON, Kentucky (11/22) -- Friday seems like a good day for a party; let's celebrate. The three major indices soared to yet higher closing records today. Inflation is remaining under control. Interest rates are low and heading lower, meaning the stock market has less competition from bonds for the investor's capital. And yet the economy is still growing moderately. In other words, things are pretty sweet right now, no doubt about it. I won't even attempt to guess how long things can stay this way, but I'm not going to miss it by agonizing over the future.
And since we're having a party, let's send in the compounding clown to do a little trick for us. Okay, all you long-term investors out there. Let's put up the current limit of $2,000 into our IRA each year and spend our 30 minutes a year Beating the Dow. You're young, you're active, you've got better things to do than spend your life glued to CNBC.
How much do you think you're going to be worth at retirement? Can you afford the lake cottage? The condo on the 15th green? The trip on the Orient Express? Okay, clown, do your stuff!
You're 30 years old, planning to retire at age 65. We'll have to make a couple of assumptions, so all you Wisemen just keep your wizard hats on for a second. First, we'll assume that IRA laws stay the same, meaning you can put $2,000 in a year. Second, we'll assume a growth rate for the Dow Approach of 20%. (It's been higher over the last 25 years, but slightly lower over the last 35. We'll compromise.)
So, 2031 rolls around and what will you have stashed away? Drum roll, please!
$5.9 million!!!!!
That's right, all from a simple $2,000 contribution a year plowed into the basic Dow approach. Now before you skeptics start getting wound up, yes I've heard of inflation. But even if you allow for 3% inflation over the 35 years, the $5.9 million is still worth $2.1 million in today's dollars. And if you're going to figure in inflation, you'll probably have to figure in some kind of inflation index for the amount we'll be allowed to contribute in the future. So, inflation isn't the bogeyman that's going to kill this party.
Of course, most of you can save $2,000 a year without even thinking about it. You probably should and will save much more over the next 35 years in accounts outside your IRA. Just think where you'll be then! That's my kind of party. Have a Foolish weekend.
Today's Dow Numbers Stock Change Bid ------------------- DD + 1/4 93.00 CHV + 3/8 67.38 MMM +1 3/8 84.75 EK - 7/8 81.63 IMN + 1/4 31.00 Day Month Year History
FOOL-4 +0.50% 4.08% 31.67% 31.67%
DJIA +0.83% 7.34% 26.47% 26.47%
S&P 500 +0.81% 6.16% 21.56% 21.56%
NASDAQ +1.29% 4.33% 21.12% 21.12%
Rec'd # Security In At Now Change
1/2/96 142 DuPont 69.88 93.00 33.09%
1/2/96 149 3M 63.76 84.75 32.92%
1/2/96 380 Chevron 52.38 67.38 28.64%
1/2/96 148 E. Kodak 67.00 81.63 21.83%
7/16/96 14 Imation 26.16 31.00 18.51%
Rec'd # Security In At Value Change
1/2/96 380 Chevron 19902.50 25602.50 $5700.00
1/2/96 142 DuPont 9922.25 13206.00 $3283.75
1/2/96 149 3M 9500.09 12627.75 $3127.66
1/2/96 148 E. Kodak 9916.00 12080.50 $2164.50
7/16/96 14 Imation 366.21 434.00 $67.79
CASH $1883.65
TOTAL $65834.40
Transmitted: 11/22/96
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