Facts, alternative and real, have been making worldwide headlines lately. At the root of the facts in question are numbers from the Inauguration. The numbers have been reported as too high or too low. The White House and media have been battling over whose numbers are correct. Wall Street appears immune to the squabbling as the stock market indices continue to trade at all-time highs. Joe Friday said it best, “Jut the facts, ma’am.”
The stock market is full of facts and numbers. Here are few facts that will help you become a better investor.
Fact 1. Stocks outperform bonds. The stock market is one of the best vessels for individuals to create long term, generational wealth. From 1926 to 2015 the S&P 500 generated an average annual return of 10%. A $10,000 investment in 1926 is worth $48 million dollars today! Long term government bonds returned 5.6% during this same period. A $10,000 investment in bonds is now worth $1.2 million. Since 1926 stocks have outperformed bonds by a ratio of 38 to 1.
Fact 2. Small stocks outperform large stocks. The Dimensional U.S. Small Cap Value Index returned 13.3% since 1926. A $10,000 investment in this index is now worth $67 million or $18 million more than large company stocks.
Fact 3. Cash, after subtracting inflation, is a loser’s bet. The one-month U.S. Treasury Bill, a proxy for cash, returned 3.4% from 1926 to 2015. During this same time frame inflation averaged 2.9%. The net return for T-Bills was .5%. A $10,000 investment in cash, after inflation, is now worth a little more than $15,500.
Fact 4. The lower your investment fees, the higher your returns. You can control the fees you pay on your investments. A fee audit will help you identify investments in your account with high fees and expense ratios.
Fact 5. The sooner you start saving money, the better. If save $1,000 a month today, it will be worth $1.2 million in 30 years. Waiting ten years to start saving a $1,000 a month will cost you $680 thousand!
As you construct your portfolio focus on facts. Invest in stocks, save monthly and keep your expenses low. If you follow this simple formula, your nest egg will grow over time.
That’s the fact Jack! ~ Bill Murray, Stripes.
Bill Parrott is the President and CEO of Parrott Wealth Management. www.parrottwealth.com
January 26, 2017
Note: Your returns may be more or less than those posted in this blog. The stock returns are gross and do not factor in taxes and inflation. The rate of return used for fact 5 is 7%.
 Dimensional Fund Advisors 2016 Matrix Book.