Beware of the Sharks......

[birchcorp]

IF YOU INVESTED $10,000 BACK WHEN......

I love this one.

"If you invested $10 000 in the stock market it would be worth $1million today". You can read this in a magazine or paper. What is the real truth behind this statement?

Here's the facts:

•There has been about 60 companies that have achieved this in the entire All ordinaries index. (Australian Stock Market)
•Of the 60, You would have had to purchase 23 of these companies prior to 1979. This means the $10,000 invested in the 1970's in todays dollars is vastly different due to inflation (Remember what the price of a house or can of soft drink was in the 1970's - You could buy a house in Sydney's wealthiest suburbs at this price)
•Only 13 of these companies at their lowest price had a share price of over 9 cents. i.e. you would be investing into a speculative company.
•You would of had to buy and sell the share on the day that it had it's lowest and highest price. i.e you had to be buying at the perfect time of a day in the right year. This is statistically unrealistic.
•22 of these companies required you hold the shares for more than 25 years.
Summary: Investing $10 000 (equivalent to investing in the value of a house in the early 1970's) into a speculative company (share price of 0-9 cents) for greater than 25 years at the exact intra-day high and low to achieve a great return is very unrealistic. Read between the lines to see that marketing can often sell a concept that can never be achieved.

 

[wobbycarly]

Agree that using the XAO is not a good measure of "investing in the stock market" due to those facts you mention, but what if one was able to invest in a low-cost index fund?

Apart from the fact that $10k in 1979 was a huge amount of money.

Did they even exist in 1979? Or are they a more recent phenomena? (Yes showing my [lack of] age)

 

[birchcorp]

Hi Rob,

I am assuming you are talking about ETF's. Yes, they are low cost, at about 0.3% and they are a good way to track the XAO. They were introduced in 1989, and have competed well with other investments. i.e. the index has doubled each tens years.

You have probably touched on one of the safest methods to invest in the stock market. i.e. not relying on that tip that will make you millions overnight.
The difficulty in making millions in ETF's or like(over the longer term) is the difficulty in leveraging and the associated lack of tax deductions if they are not providing an income...

 

[Rolf Latham]

This means the $10,000 invested in the 1970's in todays dollars is vastly different due to inflation (Remember what the price of a house or can of soft drink was in the 1970's - You could buy a house in Sydney's wealthiest suburbs at this price)

I get the point

Not quite 10 k for an eastern burbs place though

I love stats..............My parents bought an average 3 x 1 outside loo cali bungalow in Flemington for 23 k.

15 k would buy an ok 2 bed unit in Cabramatta on a bad day.

20 k would be an average house in Marrickville

45 k would buy an av Paddo place

80 k would buy a decentish plain Vaucluse house

and 200 k would buy a flash Point Piper place

ta
rolf




ta
rolf

 

[Amadio]

Apart from the fact that $10k in 1979 was a huge amount of money.

A tad under $10K in 1979 was my annual gross salary.

And $10K was the price of the bluestone house I wanted to buy in the blue chip suburb of North Adelaide in 1979.

Hmmm 1:1.