How to Survive in Volatile Markets: Go Live Your Life

I am quoted in the Washington Post:

“The Dow Jones industrial average, if one goes back to its inception in 1896 and up to the present, has earned 5.6 percent per year on the capital gains of the stocks,” said David Kass, professor of finance at the University of Maryland.

Kass then added another important point: If the dividends those stocks pay to you for owning the stock were used to buy more of the same stock (known as dividend reinvestment), the annual return/gain on the Dow would climb to 10.3 percent per year. That’s a lot. 

If $1,000 were invested in the Dow Jones industrial average at its inception in 1896 (123 years ago), it would be worth $172.5 million today, Kass said

The lesson here is twofold: First, stay in the market because you never know when stocks hit their bottom and rebound. Even Warren Buffett doesn’t know. But they always rebound eventually. Since 1965, the value of the S&P 500 with dividends included has declined in only 11 of the 54 years, or just 20 percent of the time, Kass said. It has gone up in 80 percent of those years.

Sometimes the stock market goes down and stays down for a while. But that’s pretty rare. On only one occasion since 1965, Kass said, has the S&P 500 declined three years in a row. That was between 2000 through 2002, otherwise known as the popping of the dot com bubble.

When my colleague said the Dow was at the same spot in late July of 2019 as it was in January of 2018, he wasn’t including the 2.5 percent or so annual dividend yield that you earn on the Dow. Over many years, as Kass points out, dividend reinvestments supercharge your stock returns.