March 22, 2010, 5:00 am

Investing In The Dow Jones; Yield Decade per Decade

by: The Financial Blogger    Category: Investment, Market and Risk
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yeah yeah, I know, this post was first published last Friday (for the fastest of you) before I realise that I was posting twice on the same day… so here we go again with tables:

Considering the latest news on employment and how economists see the US future (yeah, I know I shouldn’t trust them, but they can’t be wrong all the time 😉 ), more and more investors are heading back to the stock market.

While the easy money has already been made, back in 2009, there is still a lot of room for investors to see some interesting yield from the Dow Jones. Why choose this stock index over the S&P 500? Because the following chart about the Dow Jones yield per decade starting from 1908:

YearDow Jones Return
1908-191860%
1918-1928254%
1928-1938-49%
1938-194814%
1948-1958226%
1958-196877%
1968-1978-19%
1978-1988165%
1988-1998331%
1998-2008-9%

After booms come busts, after busts come… booms!

As you can see every time there is a negative decade on the Dow Jones, the following one is that of a big boom. It seems that we are running around in the same circle over and over again: we get all enthusiastic about something, about the magic and never-ending economic source that will guarantee prosperity for everybody.

Recently (in the past decade), we have seen the rise of Internet and what they called the “new economy”. Websites were selling based on traffic or ads. No need for income or profits anymore… and then we finally realized that we needed money to keep the business alive.. Interesting how the new economy was depending on good old sound financial basics 😉

Only a few years ago, financials had become the most prolific economic beasts ever created. Investment firms and international banks were making money through many kinds of innovative products (remember the credit swap definition?). They financed a whole bunch of people who didn’t deserve credit based on the right to own your property. In the end, those people were stuck in the insidious trap of mortgage payments and adjustable rate mortgages and everybody paid (and are still paying) the high price for this mistake.

Now that we have gone through 2 huge market crashes implying the total collapse of sectors of the economy, historic data shows us that the Dow Jones is set to enjoy a very interesting decade in terms of yield. Will it really work as simple is this? I am not quite sure about that!

While 2009 was a great year on the Dow Jones (it was + 20%) and 2010 should be quite interesting too in terms of yield, it may be too soon in the new decade to talk about one of the best periods of the Dow Jones. Plus, we are starting our calculations from a market low (beginning of 2009) so chances are that numbers will be on our side for the next 5 years at the very least (the usual length of a stock market cycle is 5 to 8 years).

What is in the Dow Jones Anyway?

In order to determine if it’s the right time to invest in the Dow Jones or not, I thought of providing you with the Dow Jones stocks and performance for the past 12 months (as of March 17th):

TickerNamePrice1Y Return
MMM3M Co$82.1173.36651
AAAlcoa Inc$14.52162.2873
AXPAmerican Express Co$40.88226.2578
TAT&T Inc$25.908.818792
BACBank of America Corp$17.21175.3991
BABoeing Co/The$69.11107.7033
CATCaterpillar Inc$60.20133.4311
CVXChevron Corp$74.7118.82229
CSCOCisco Systems Inc$26.2562.70137
KOCoca-Cola Co/The$53.9034.21815
DDEI du Pont de Nemours & Co$36.4486.65482
XOMExxon Mobil Corp$67.41-0.01678489
GEGeneral Electric Co$18.0885.75392
HPQHewlett-Packard Co$52.4577.57225
HDHome Depot Inc$32.4756.23695
INTCIntel Corp$22.1253.27623
IBMInternational Business Machines Corp$128.0540.47857
JNJJohnson & Johnson$64.6231.59445
JPMJPMorgan Chase & Co$43.7375.04522
KFTKraft Foods Inc$29.6733.17644
MCDMcDonald's Corp$66.3728.00577
MRKMerck & Co Inc$37.7548.71565
MSFTMicrosoft Corp$29.5878.64304
PFEPfizer Inc$17.1825.45616
PGProcter & Gamble Co/The$63.9137.49042
TRVTravelers Cos Inc/The$52.9735.33754
UTXUnited Technologies Corp$72.1477.56541
VZVerizon Communications Inc$30.157.44437
WMTWal-Mart Stores Inc$55.9314.28737
DISWalt Disney Co/The$33.6190.71697

Now then, it is now up to you to decide if the Dow Jones will really go through one of its best decades in terms of investment returns!

 

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Comments

by: Future CFP? | March 22nd, 2010 (8:35 pm)

Dear TFB, I’ve spent the past couple days just reading over most of your blog posts lol. I actually forgot how I got to it but I remember the first blog I read was the one about making six figures by the time you were 28. That’s when I was like, this guy is THE MAN. I’m just a 19 year old university student contemplating between either a CMA or CFP designation, leaning towards CFP though. I’ve been into stocks my whole life so being a financial planner seems like my gig. A couple things on my mind is the stability, I was reading an excerpt from “The Complete Financial Advisor” by William Cole and he mentioned this is a career that lasts roughly 3-4 years. Do you have any insight into that area and I am not sure about you but the few that I do know work on commission, are there many salary opportunities out there?
P.S – Got any advice for a young up and comer?

Interesting post. I enjoyed it, this time with tables and stats…nice work.

by: The Financial Blogger | March 23rd, 2010 (8:13 am)

@ Future CFP,
I’ll be sending an email shortly! thx for reading TFB!

Nice! I like the historical returns chart by decade…really neat. Just did a DJIA post not long ago myself. Some really solid dividend achievers on that list. With the loonie creeping up, could be a great time to buy in on some of these bad boys!