Hey guys... I made the page. Just saw lots of traffic coming from here so figured I'd come check it out.
A couple things I figured I should address after reading the comments:
1) Yahoo!'s historic S&P 500 data does not factor in dividends. So the returns would likely be 1-2% higher each year (which over time makes a very big difference). I should probably add a note on the page mentioning this.
Here was my conundrum when making the tool: I picked the S&P 500 because it's the only index that allowed me to pull very, very old data (nearly 70 years) using Yahoo! Finance; plus, it's often the "go-to" index for discussing overall market performance. But it's not "real" in the sense that you can't actually buy shares, and it doesn't pay dividends. So I could make up my own method for factoring in dividends, but I wanted to go strictly by the numbers. When you factor in financial advisor fees / bad decisions that new investors make, it's probably enough to "counter" the lack of dividends, if you want to look at it that way.
Plus, sites / companies are notorious for over-stating how much you can get annually by investing. I'd prefer to under-state it, if anything. Don't want to sell false hopes.
2) Regarding incremental, small deposits (and potential transation fees)... it's actually very easy to set up auto-investments in index funds that match the S&P 500 without ever incurring any fees. You could do $31 on the first of every month and basically simulate this.
3) Inflation would be useful to factor in, but it would also add confusion. This could be a cool add-on, but I'd have to think about the clearest way to demonstrate it. So would the 1950 daily amount be equivalent of $1 today? (so I'm guessing 20 cents or so?)
Hope you guys enjoy the site. Feedback is great (positive or negative - I'm not sensitive).
You may want to look at Robert Schiller's (of Case-Schiller index fame, among other things) data set available here:
http://www.econ.yale.edu/~shiller/data.htm
He has S&P dividends by quarter back to 1871.
Fees do make a difference, though they are pretty small in e.g. VFINX -> VFIAX. If you want to be super realistic you could build up the dollars a day at say the federal funds rate until you hit the VFINX minimum, then accumulate $100 batches at that rate before investing them in the S&P 500. Once the account hits VFIAX switch to that for fees. There's also taxes but that's just a mess because there are so many possible scenarios. Probably this whole paragraph is just overkill.
As for as inflation goes, the big thing is not the current amount of money, which after all is today's dollars and so easy to understand, but to try to get across the fact that in 1950 $1 was a heck of a lot more than it was today (about $10). Still not a huge amount of money perhaps, but not something you would just drop in a tip jar either.
That also gets to the point that is kind of a crazy investment strategy. In real terms you are investing the most when you are least able to afford to. Since it isn't supposed to be a serious strategy, instead more of something to think about that's no big deal, but it's worth noting.
Regarding inflation, you can use the the CPI (http://www.bls.gov/cpi/), specifically the CPI-U (all urban consumers), not seasonally adjusted. For example, $1 in 2015 was $0.10 in 1950. The BLS actually has a little calculator you can play with (http://data.bls.gov/cgi-bin/cpicalc.pl).
I think it is a great visualization and it helps to illustrate why saving and investing should be part of everyone's strategy to have something set aside when they are older.
And I think it illustrates that it doesn't have to be a "lot" of money to make a big difference over time.
It's also rather misleading, as you point out, because you can't invest $1 (or often even $31 a month). I assume you have seen the mr. money mustache (MMM) web site. His approach to communicate the value was to discuss mutual funds which reflected broad diversity in the market. Many of them have quite long histories as well. Of course with mutual funds you have to factor in taxes (which is really hard to do in a general way) since funds transact sales and that results in the realizing of short and long term gains and losses.
Aside from the difficulty of actually investing $1 a month I found the visualizations excellent and the floating bubbles pretty cool too.
S&P 500 Total Return Index. Calculated intraday by S&P based on the price changes and
reinvested dividends of SPX <INDEX> with a starting date of Jan 4, 1988.
That's technically what I'm using, however, if you look at the S&P 500 historic data - http://finance.yahoo.com/q/hp?s=%5EGSPC+Historical+Prices - the Adj. Close is the same as actual close (meaning there's never dividends or splits to account for). That Adj. close is what the main site - http://stockchoker.com/ - uses for all symbols, so for pretty much everything else, splits and dividends are accounted for... but nothing else I've found goes back anywhere close to 1950 (and is also representative of the stock market as a whole).
So that's why I'm leaning toward still using the S&P500 data, but adding an "average" dividend payout each year (which I'll do some research on.. guessing a little over 1% a year).
I invested my spare money in a computer, and it's definitely paid back more than the S&P 500 in salary. Using up limited funds in childhood on financial investments is just madness
I don't think anyone is suggesting to not educate yourself and instead invest, but the point is what even a small amount of money can do over a long time.
I think the point is that there are some non-stock investments that also pay off. Looking at something like this can feel very either/or: "If only I didn't do X, I could have invested the money."
Nice comparison! I feel the same about my education, pays back about my total investment every couple of months. Of course in my country (Netherlands) I pay back a lot more in taxes.
Just out of curiosity, how much do you pay in taxes? If you're a sillicon valley engineer on the higher end, you end up paying 30-40% federal + 10% state and local taxes.
Healthcare (obligatory but subsidized for lower incomes) will cost you an additional 95 euro/month (with an "own risk" of about 375 euros). I always thought the entire US paid a lot less taxes to be honest...
I really do not think the creator of this site is suggesting that children invest in the stock market. After all, how exactly does a 1 day old child do so? Instead, I think this is just an interesting tool demonstrating a "what if?" scenario.
That said, investing a dollar a day on behalf of your child and tracking the progress of the account with them over time would be a cool way to teach them about money. You could even give them the option of instead of receiving some portion of an allowance, invest that as additional money into the account. There's all sorts of possibilities.
Interesting, but I doubt people tend to invest this consistently and regularly. They probably have an easy time investing when times are good (and they actually have a few extra bucks to gamble with), and tend to not invest when times are bad (they're trying to eat).
Take someone who was doing pretty good during the tech and real estate bubbles, and decided to invest their spare change in 1998, 1999, 2005 and 2006, but did not invest in the "leaner" years. I bet that person overall would have lost money on the stock market. Oh, wait, I can tell you that that person would have lost money, because it was me!
I'm so tired of the constant drum-beat of "The only way to retire is to invest in the stock market!!" that only seems to serve the interests of Wall Street. I wish there were viable alternatives.
This is why all the retirement advice is to regularly contribute - Smaller amounts monthly (or even more frequently) works way better than only doing so when you're flush. The key to this is not spending all the dollars you make on your present lifestyle, but setting aside some percentage for investment from every paycheck. This means you'll be buying in the down times too, where everything is on sale.
Of course it also means accepting a lower spending rate in one's life.
You still end up ahead. [1] Even if you invest at the worst possible times, investing early and over a long period of time will still make you wealthy. This isn't necessarily the case in all situations; I think you would have lost money in the Japanese stock market over the past decade if you don't consider dividends/potential deflation. But it has held for the US market for a long time.
You're wrong. If you only invested lump sums in the S&P 500 in 1998, 1999, 2005, and 2006, you'd have made money by today. Not as much as you would have historically, but still a fair chunk - and while yes, inflation would have eaten a large, large portion of it, it's way better than leaving your cash under your mattress.
There's no way you lost money if you were in the S&P 500, unless you were pulling it out of investments after crashes - in which case, duh, you're buying high and selling low, what did you expect?
And that's if you were only in the S&P 500... a more reasonable retirement portfolio is much more diversified, which would have increased your returns and lowered your volatility.
Asset prices are depressed during bear markets. Those make incredibly good times to buy, because when the market jumps back up your dollar during bad times becomes so much more valuable when those assets appreciate during good times.
If anything, during good times it may make the most sense to store value in liquid accounts and wait for fire sale prices when the economy craps out. But some consistent growth is better than none, due to dollar cost averaging (i.e. you don't know whether asset prices are going to go up or to go down) [1].
This also ignores the fact that your average person, until more recently, couldn't so easily invest in the S&P 500, without some big transaction costs. A couple of factors that make this possible today:
1. Online brokers, starting in late 90s, lowered retail trading fees, made access easier.
2. low-fee, highly liquid, highly competitive ETFs give anyone cheap exposure to the broader market indicators, like S&P 500.
So an ROI calculation from the 1970s is mostly academic, but I guess illustrative of what you might be able to get using that same approach over the next 30-40 years.
If you invested $1 each day of your life into a savings account, you'd have $0 for perpetually owing the bank maintenance fees.
My mother took us to the local bank one Christmas when we were children and put $100 each (interest rates were at a peak) into our accounts "so that we could learn about money". Five years later, we went back and found the bank had emptied the accounts steadily each month until nothing remained. The kind man who'd once helped us open the accounts was very apologetic about it, but explained there was nothing he could do to get it back.
That experience did teach me something about money, that you can't always count on it to be there and to be careful to whom you entrust it, but it also taught me about the banking system and saved me from simple mistakes I saw my peers making as I got older. I wouldn't have started investing so young if banks had never put a sour taste in my mouth.
I had trouble making money for the next 10 or so years. I couldn't go to that many places or do too many things. And I had to live with miserly and cheap old people. Childhood sucked.
$1 per day isn't much money as far as initial investments go. They are also using the S&P 500 which by it's nature is mostly mature companies that aren't typically going to see explosive price doubling growth.
The S&P 500 is also a much safer hands-off investment which is likely to beat most active investors - especially for the amounts of investment we're talking about for $1/day (or even $10-100/day...)
A complete non-techie here. My takeaway is this: Wow, look at the value of saving and I've got to invest--not just save--for the first grandchild starting tomorrow.
My dad was banker and a saver so I grew up valuing saving just because. Like others here, the site makes it easy to understand how saving (as I read it, and yes, I know there is a difference) can yield lots of money! Now to share this with those in the social services world in DC so they can use it in their financial ed classes.
A variant is start with one penny a day and increase by one penny each day. People are adults by 10,000 days, middle age by 20,000 and die around 30,000. The accumulated amount is triangle numbers of days, or the day count squared, then halved. That would be a half million (10K^2/200), 2 million and 4.5 million dollars respectively for these 10K-round numbers. These are actually feasible investment amounts.
Investment fees were high more than 25 years ago. I remember paying 3% to buy or sell a stock in the 1980s when you had to use brokers. That limited the kind of day trading strategies you could use. Its as little as a hundredth of a percent now for a large computer executed transaction.
This is only true if there were no fees associated with investing, which is ridiculous. If you went to a stock broker with a dollar per day, you would be very lucky to end up with $0.01 in equity that day.
That would reduce the ROI, because doing it often (every day) approximates continuous exponential growth (e ^ x) while doing it in batches reduces to power growth (1 + r) ^ x. See the effect this has in the example given here:
Since so many people suggested it should include dividends and dividend reinvestment, I added that in, based on this chart: http://www.multpl.com/s-p-500-dividend-yield/table - as expected, it makes a huge difference if you go back a ways. (I had no idea dividends were so much larger in the 50s-80s). There's a toggle button to see with and without. Thanks again for the feedback!
Does this take into account commission fees ? If I am charged $7 per trade and I invest 1$ per day I am losing 6$ per day to commission. Or are you assuming this is commission free ?
Speaking of commission, it "has to" be a fund because the SP500 is not constant, companies are continually being added and removed. Otherwise you'd directly owe substantial commissions and you'd have to be careful to avoid various capital gains income taxes while endlessly rebalancing.
There are a lot of index funds, for no apparent reason the first one I checked was VFINX and it's annual expense ratio is 0.17% which is pretty low compared to the average return over the past 90 years around 10%.
So the actual result would be a little lower, although not staggeringly so.
1983 seems to be a magic year (there is couple of years in 1970s and 1950s). Coincidentally it is my birth year too. It intrigues what is happening with other peoples investments born on that year. Looking at my investments, how much are they worth? Not as much as what the tool says, but I do have 75%. These years (1983,1970 1950), are they special in a way? How are others doing?
Where can you find bank interest over the 1.1% ally is offering? Even if you did CD ladders,the last 15 years or so have had interest offerings of < 5%, mostly < 4% on 5 year CDs.
I'm not saying you aren't - I'm saying that assuming a 7% apr for the last 15 years from banks is not a good one - a savings accounts and CDs just don't pay out that high. Even if you got some big gains early (80s and early 90s) - the very low compounding rate since 2000 will squash those bank returns.
Not quite true. Early money dwarfs later money in any calculation. But the last 15 years would certainly put a damper on things. Would be nice if the app calculated real interest return for us!
(Note from the end of the chart linked til this month, I assumed the same interest rate).
And found that investing the once a month in a 6 month cd, with a dollar amount equal to the number of days in that month, plus reinvesting the amount coming due (principle + interest) that month from previous CDs, would yeild way less than the market according to this calculator:
In the CD case - just under $90K
In the stock case - just under $560K
If my math turns out to be incorrectly done - please let me know I like to learn, but I think I did this right.
The problem is that the stock market is a sort of "inefficiency": Companies would prefer to keep their own profits instead of giving them away to investors.
Yes, people have done well in the past, but I believe it's entirely possible for median market gains to disappear in the near future as this inefficiency is removed: We're seeing the start of this right now, in the way many of the more desirable "unicorns" are relying mainly on private equity and loans.
They already do, it is called a college fund, or 529 plan. Most parents with any sense are investing early because that's the only way to save up the $200,000 that college will cost per kid.
Ah, ok, I hadn't heard of it in my country, but it makes sense someone in the US had it :)
College in my country is free if you want to (but many people, including myself, believe you're better off going to a private, paid university anyways, for most careers).
Some people in the "basic income" movement propose the government give every newborn a certain grant for future large expenses like college. (The EIC is sort of like this, but just for lower income people.)
If you invested $1 in the market for that many years you'd be broke because of how many fees you'd have to pay for each $1 trade. It would make more sense to calculate it as $365 per year since your birth, then at least your fees would be minimal.
> I didn't have that much money when I was a child
> it was hard to invest in the S&P 500 until recently
A lot of you are missing the point. toado85 clearly made this to illustrate the behavior of the stock market in the long term; it's not a suggestion that you literally do what the hypothetical investment is doing.
Wat? Only 145k since 1969?? I was hoping to be a paper millionaire, minimum. Glad I spent it on (an average of) a couple of cans of beer a day instead.
A couple things I figured I should address after reading the comments:
1) Yahoo!'s historic S&P 500 data does not factor in dividends. So the returns would likely be 1-2% higher each year (which over time makes a very big difference). I should probably add a note on the page mentioning this.
Here was my conundrum when making the tool: I picked the S&P 500 because it's the only index that allowed me to pull very, very old data (nearly 70 years) using Yahoo! Finance; plus, it's often the "go-to" index for discussing overall market performance. But it's not "real" in the sense that you can't actually buy shares, and it doesn't pay dividends. So I could make up my own method for factoring in dividends, but I wanted to go strictly by the numbers. When you factor in financial advisor fees / bad decisions that new investors make, it's probably enough to "counter" the lack of dividends, if you want to look at it that way.
Plus, sites / companies are notorious for over-stating how much you can get annually by investing. I'd prefer to under-state it, if anything. Don't want to sell false hopes.
2) Regarding incremental, small deposits (and potential transation fees)... it's actually very easy to set up auto-investments in index funds that match the S&P 500 without ever incurring any fees. You could do $31 on the first of every month and basically simulate this.
3) Inflation would be useful to factor in, but it would also add confusion. This could be a cool add-on, but I'd have to think about the clearest way to demonstrate it. So would the 1950 daily amount be equivalent of $1 today? (so I'm guessing 20 cents or so?)
Hope you guys enjoy the site. Feedback is great (positive or negative - I'm not sensitive).