A note from our ever-industrious and resourceful CFO, John Moss
This year, I celebrate 40 years in the financial services profession. I’d like to share some reflections with you. First, a few numbers.
|US Dollar||$1.00||$4.20||3.7% compounded rate|
|Median New Home Price||$44,200.00||$306,700.00||6.94 times|
|Chevy Impala||$4,750.00||$27,800.00||5.85 times|
|Barrel of Oil||$13.10||$ 40.00||3.05 times|
(all figures are estimates)
When I started my career in financial services in 1976, Microsoft was 18 months old. The Apple I came out, looking like this:
Image source: Wikipedia
The mighty Amazon was just a river. That Chevy Impala was a much different car; no airbags, GPS, or satellite radio. Gasoline mileage was half of today’s. The median size of a new home has risen 54%, and is stuffed with new gadgets. You would not prefer a 1976 doctor's appointment with anything worse than a cold. These advances and more have shown up in our lives and in our investing results, but not in inflation indexes.
One thing that is definitively worse compared to 40 years ago is the benefit of simple savings. Just out of school, I tried to accumulate enough savings to provide security for my family and make a down payment on a home. I could go to any bank and expect to get a one-month CD rate that would match inflation or maybe a little bit more. In fact, during the 80's and 90's on average CDs exceeded inflation by 2.16%. It was as close to riskless as anyone needed and certainly wouldn't be called investing. Savers could survive if not thrive.
Those days are gone. Despite periods of market turmoil, CD spreads in this century prior to 2009 still beat inflation on average by 0.54%. However, since 2009, inflation has exceeded CD yields by 1.11% on average. And the last three years is a bit of an approximation; CD rates have been so low the Federal Reserve database stopped tracking CD rates in 2013. Savers are in a long, rough stretch.
Investors need not despair. A $10,000 investment in the Vanguard 500 Index Fund (VFINX) 40 years ago would be worth over $600,000 as of July 31, 2016, assuming reinvestment of all dividends and distributions and exclusive of fees and taxes. In other words, someone who purchased VFINX on its inception date in August 1976 has grown their investment by nearly 11% annually, simply by letting the advantages of time and compounding work for them. Today an 11% annual return is harder to achieve, but the benefits of compounding still apply.
At Revolution Partners, we stress to our clients that time is an asset. When investors are patient and allow their earnings to accumulate and grow further, they are more likely to outpace inflation and reach their financial goals. That’s why we look for long-haul strategies and focus on removing as many obstacles as possible, such as high expenses and taxes, which drag on annual, and thus cumulative, returns.
As my own financial services career has evolved, so have the strategies available to help individuals and families Realize Life's Worth™. I'm fascinated by the scale of the changes I've seen over these 40 years, and I'm proud to be building an enduring enterprise with Revolution Partners.
Read more Realize articles about investing:
- All Will Be Revealed: Is your portfolio too complex and expensive?
- We Run a Tight Ship: Paying attention to asset allocation, expenses and taxes
Or get to know John and our other team members by clicking each person's photo on our About Us page.