Tuesday, December 31, 2013

A Pretty Good Year, Too

Major indices were up at least 20%. Meanwhile, Apple's price recovered from its summer bottom
to finish 2.18% higher by Dec. 31st. Including dividends, that was a return of 4.4%; really, not so bad.
By far the biggest factor behind income inequality is wealth inequality. A mega-rich mogul's billion dollars of stock holdings at the beginning of 2013 are very likely to have grown by at least $200 million (20%) by year-end, all without him or her spending an hour at the office.

On a much more common and achievable scale, it's entirely possible for a middle-class working couple to have accumulated one million dollars in investable funds by the time they are in their 50's through a program of regular saving. Here's one scenario among an infinite number: new annual savings start at $7,000 and increase by 3% per year to $16,496 in year 30; the total put away would be about $333,000. Meanwhile, if the couple earned 8% on their investments (the S&P 500 increased by an average of 10% per year from 1975 to 2013), the portfolio would have grown to $1,069,000.

The above is an extremely simplistic example, because we're not considering the negative effect of income taxes (although if the funds are stored in tax-deferred 401(k) or IRA accounts taxes are not a factor until funds are withdrawn), nor are we considering the positive effect of dividends. The point of the exercise is to show that getting to $1 million is doable, and so was enjoying at least a $200,000 increase in one's portfolio in 2013.

Billionaires are leaving everyone behind, but if they can put aside the sin of envy many will come to realize that they had a pretty good year, too. © 2013 Stephen Yuen

No comments: