Sunday, December 26, 2010

Creating a Mini Strategic Plan: A More Effective Alternative to New Year's Resolutions

Creating mini-strategic plan as alternative to New Year's Resolution


It's getting close to New Year's Resolution Time. As a result, I'm seeing a significant increase in traffic to my Personal Strategic Planning posts. Personally, I think strategic plans are more effective than New Year's resolutions -- partly because they force to you think through not only what you'd like to accomplish, but also how to go about it. However, my sense is that some people are not yet ready to commit to developing a full-blown personal strategic plan. If you’re one of those people, consider taking less than 30 minutes to do a mini- plan instead.

Creating a Mini-Personal Strategic Plan

The process for creating a mini-personal strategic plan is the same as the process for creating a full-blown plan that I described in my earlier posts -- except that it addresses only one of your dreams. In short, you:
  1. Describe your dream (what you want to accomplish)
  2. Identify your strengths,

Monday, December 20, 2010

How Much Will a $10,000 Investment Grow to in 10 Years?

What will $10,000 invested in the stock market be worth in 10 years? No one knows. However, the graph below shows the frequency of outcomes in the past. That's the best guide we have to the future. (Note: if you want to know what $10,000 will be worth invested at a fixed rate of return (e.g., in Treasury Notes/Bonds or a CD), or NOT invested, see "Related Posts" at the end.)

This post explores the inherent variability of stock market returns, and especially the impact that variability has on retirement planning. Understanding the risks your retirement plan is subject to is the first step in managing those risks.

Results of Investing $10,000 in the Stock Market: What Will $10,000 be Worth in 10 Years?

Variability of stock market (Dow) Returns over 10 years

The graph above (click on image to expand), shows the historical results of investing $10,000 in the stock market for 10 years. The horizontal axis shows possible values of the portfolio at the end of the 10 years assuming dividends have been reinvested. The lines and bars reflect the frequency of various outcomes for 100 10-year periods beginning year-end 1899. (Note: to calculate ending portfolio values for an initial investment of $1,000, divide by 10. To calculate the results for n thousand dollars, multiply the results for $1,000 by n. For example, for a $100,000 investment, multiply the results for $1,000 by 100.) Following are some questions this chart can help you answer.

How Often Will My Ending Portfolio Be Between, For Example, $5,000 and $10,000(!!)?

Sunday, December 12, 2010

U.S. 10-Year Treasury Note Real Return History

This post graphs the history of "real" (i.e., inflation-adjusted) returns for investors in U.S. Treasury 10-Year Notes beginning in 1900.

100 Years of Treasury Note Interest Rate History documents U.S. interest rates over the past century based upon the rates in effect at the "time of issue" -- the "coupon rate." For buy and hold bond investors, that was also the investor's nominal rate of return.  However, because of inflation, the investor's real return is almost always less than the coupon rate. For short maturities, the investor's return is very close to that coupon rate -- again, assuming he holds to maturity. However, over a 10-year period, inflation can have a significant impact. In this post, we'll evaluate that impact.

10-Year Treasury Note Real Returns: The Impact of Inflation

graph of 10-year T-Bond inflation-adjusted returns (to 2012)
10-Year Treasury Note Real Returns

The above graph uses Robert Shiller's Irrational Exuberance data to approximate the historical "real" returns of investors in 10-year Treasury Notes from 1900 to 2002 (see

Thursday, December 2, 2010

December 2010 Stock Market Update

November, Year-To-Date & Recovery-To-Date Review
Note: click here for December/End-of-year data

After advancing more than 1,000 points in the prior two months, the market set a new 52-week high of 11,444 early in the month, then took a breather. The DJIA (Dow Jones Industrial Average) closed November at 11,006.92.

There is both good news and bad news, depending on your perspective. If you like good news, here's how the November close stacks up against some earlier benchmarks:

  • From 3rd Quarter Close of 10,788: Up 219 points (2.0%)
  • From 2009 Close of 10,428: Up 579 points (5.6%)
  • From Recent Low of 9986 on August 26: Up 1021 points (10.2%)
  • From 52-Week Low of 9686 on