50 Years of Stock Market Returns
Understanding historical stock market returns is essential to retirement planning. The idea is that if you consistently put enough money in index funds, you can approximate how much money you might need to save for retirement. Of course it’s impossible to know what the returns will be next week, or next year, but these averages are almost essential for making predictions about retirement. Since its inception in 1926, the S&P has an average nominal return of approximately 10%. What about a slightly smaller window?
Returns of 40% or more happened 22 different times. The index was up 50% or more in a 12 month period 7 times. The stock market was down in 17% of 12 month returns. It experienced double-digit losses 8% of the time and was down 20% or more in just 3% of one year returns.
~Ben Carlson, A Wealth of Common Sense
In this article Ben Carlson takes a look back at the last year and the last 50 years. Over the past 50 years, the S&P 500 has had an even higher return than the 100 year average, reaching 12.5% per year. Last year was an especially good year, with a 31% return. While a 31% annual return seems crazy, it was not even in the 90th percentile of annual returns. Investors might also take comfort in looking at historical returns after years with similar returns to last year. Past results definitely can’t predict future returns in the market; however, the returns following a 30% or more increase year were 11.1%, which suggests that we aren’t necessarily destined to have a big crash or pullback after a massive year. If you’re interested in more details on how the market has performed over the last 50 years, the article is definitely worth a read.
Failing to Convince Anyone in Real Life to FIRE Despite Big Gains
As the last article showed, the market is a massive wealth building engine. It’s only natural to think that some people might use those gains to leave their stressful jobs behind and retire early. The FIRE (financial independence/early retirement) movement generally uses a “4% rule” of thumb to estimate when early retirement is possible. When you can live off of 4% of your assets (or equivalently if you have saved an amount equal 25x your annual spending), it is generally assumed that you can live off of the returns of your investments (exclusions apply, buyer beware). But if you live in an affluent area, you might know people whose assets are maybe 50x higher than their annual spending yet still work high-paying high stress jobs and aren’t happy. This article asks why?
A 48-year-old man recently told me he’d made a 22X on his AMD position over eight years. That is extraordinary, and I congratulated him. But I couldn’t stop thinking: why is he still driving 45 minutes each way to work, paying $50 a day to park, and working 50 hours a week fielding client calls and traveling?
~Sam Dogen, The Financial Samurai
In this article by Sam Dogen (aka the Financial Samurai), Dogen examines his friends in the San Francisco Bay area who have more than enough money to retire yet are literally making themselves sick by working difficult jobs. As one of the “OG” members of the FIRE movement, Dogen has tried to convince his friends that early retirement has many benefits and these people have more than enough money to retire and retire comfortably. However, Dogen is continually surprised by people he knows hit giant investment gains yet refuse to walk away from their day-jobs. Dogen then reflects upon the FIRE movement and why some people might be afraid of early retirement. If you’re intrigued by the early retirement movement, you’ll want to check out this article to see why so many people choose not to retire early when they have the opportunity.
The Aldi Finds Phenomenon Why the Middle Aisle is the Most Profitable Section of the Store
Do you shop at Aldi? Aldi is known for having excellent prices on grocery staples and fresh produce, especially pushing their own brands rather than their name brands. There’s even a whole section of TikTok devoted to testing “Aldi dupes” vs. their originals. The verdict is that they taste the same… except when they are better. While Aldi has lots of loyal fans throughout Europe and the United States, some of their magic has nothing to do with groceries. The “Middle Aisle” in Aldi is filled with non-grocery items that are only available for a week and aren’t restocked when they sell out. You could find a set of pajamas, an air-fryer, or some seasonal decor. Each week is a new adventure.
These impulse buys carry a much higher profit margin than the basic food items like flour or sugar. This extra revenue allows the store to keep its grocery prices lower than the regional competitors.
~Shay Huntley, Grocery Coupon Guide
This article focuses on why a grocery store that prides themselves on low prices even has an item with random objects in it. The Aldi middle aisle creates a system of unpredictable rewards, enticing people to return to Aldi because they never know what kind of good deal they might find in a center aisle. It’s the same strategy behind why slot machines are so successful… you never know when you’re going to hit the jackpot. Additionally, the middle aisle helps create buzz on social media as shoppers post their big steals. If you’re an Aldi enthusiast, you’ll definitely want to check out his article with fun facts about the “aisle of shame”.