In the long term compound interest has a huge strength because the amount of credited interest earnings are subject to interest rate further. You can see it best on the figures. 100 000 dollars invested in shares of the S & P500 index in 1926 zamieniłoby in 1990 at 22.5 million dollars while the same money invested in bonds at 1.6 zamieniłyby million dollars. These figures speak for themselves clearly enough.
In 1932, after the stock market crash on Wall Street, S & P500 index has fallen to just 5 points. At this time, this ratio is at about 1100 points, which still is a decent annual rate of return of 7.2% per year (5 x 1.072 ^ 77 = 1056), but also after the stock market crash, we're the biggest crisis since the 30 - these (or at least since World War II.) Index, however, firmly holding up much higher than in the 30's. As we see in the longer term, stock market, in principle, is continually growing and is still higher, despite the various sharp turns in the economic history of mankind. 100 000 dollars invested in the 30-share index of the S & P500 zamieniłoby today in a staggering 21 134 $ 816 (100 000 x 1.072 ^ 77 = 21 134 816).
also try a slightly different look at the approach to counting and let us for the last 30 years as a fairly representative for comparisons of rates of return from stocks and bonds. S & P500 over the past 30 years had an average annual rate of return of 8.3%. It is easy to count - its level in 1979 is equal to 100, so:
100 x (1 + 0.083) ^ 30 = 1093rd
1093 is roughly the current level of the index. So we have 8.3% average annual rate of return. Meanwhile, the average yield of 30-year U.S. bonds comes out in this period of less than 8.3%. From 1977 to 2007 we get an average yield 8.09% 30-year-old. S & P500 at that time gave a higher rate of return - more than 10%:
80 x (1 + 0.1) ^ 30 = 1395
Average yields on 30-year U.S. from 1977 to 2009 is 7.8%. S & P 500 gave at that time 8.5% gain, or more: 80 x (1 + .085) ^ 32 = 1088th
shares offer better long-term rate of return than bonds now I'll throw a few more arguments in favor of this as well as the fact that at the moment the moment to invest in shares, bonds against the worst possible way.
1) Peter Lynch in "Beat the Stock Exchange," compiled by Ibbotson Yearbook (p. 26) return on long-term government bonds, long-term corporate bonds, treasury bills, shares of small companies and share with the SP500 in the ten-day intervals. Treasury bills will omit the brackets I am seeing negative returns, so it looks like this:
Decade 1920-1930:
Corporate Bonds - 5.2%
Government Bonds - 5.0%
shares of small companies - (-4.5 %)
SP500 - 19.2%.
Decade 1930-1940:
Corporate Bonds - 6.9%
Government Bonds - 4.9% of the shares of small companies
SP500 -1.4 - 0.0%
Decade 1940-1950:
Corporate Bonds - 2.7%
Government Bonds - 3.2%
shares of small companies - 20.7%
SP500 - 9.2%
Decade 1950-1960:
Corporate Bonds - 1.0% Government Bonds
- ( -0.1%)
shares of small companies -
SP500 16.9% - 19.4%
Decade 1960-1970:
Corporate Bonds - 1.7%
Government Bonds - 1.4%
Shares Small Business - 15.5%
SP500 - 7.8%
Decade 1970-1980:
Corporate Bonds - 6.2%
Government Bonds - 5.5%
shares of small companies - 11.5%
SP500 - 5.9%
Decade 1980-1990:
Corporate Bonds - 13.0%
Government Bonds - 12.6%
shares of small companies -
SP500 15.8% - 17.5%
As can be seen only once pierced bonds share - in the 30 -those during the Great Depression. In the 70's, corporate bonds were better than the SP500 but the share of small firms were better than being compared both types of bonds, so in this decade, we have a tie. In other decades, up to 5 win shares. As Lynch says, 100 000 dollars invested in government bonds during the period as listed in the above statement would give U.S. $ 1.6 million, while the same U.S. $ 100 000 invested in the SP500 would provide up to U.S. $ 22.5 million.
CDN
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