Saturday, October 22, 2011

Comparing Housing vs. Stock Market Growth

Readers are interested in comparing increases in the price of U.S. residential real estate to stock market growth. While there have been periods where the prices of homes have appreciated faster than the stock market (especially recently), in the longer term the stock market has prevailed. This post compares historical growth in the two markets and suggests some factors that tend to constrain long-term growth in housing prices.

U.S. Housing vs. Stock Market Growth

DJIA (Dow Index) growth vs U.S. residential real estate / housing growth since 1929

In the chart above the red line shows the growth of $100 invested in the Dow Jones Index at year-end 1928, with dividends reinvested through year-end 2010. The blue line shows the growth of the Shiller residential real estate price index during the same period, assigning 1928 a base value of 100. All amounts are

Saturday, October 8, 2011

Real World Expenses Reduce Published Market Returns

The stock market returns published in this blog, and in most other publications, are theoretical returns. In the real world, investors incur expenses that reduce the reported market returns. This post overviews those expenses and shows how they can easily reduce a retirement portfolio to less than 50% of its theoretical value!

Graph shows costs reduce ROI of stock investments

Market or Index Returns

Elsewhere on this site, we have seen that over long periods of time, the DJIA (Dow Jones Industrial Average) has returned about 10% per year. For example, the return from year-end 1990 to year-end 2010 was 10.2%. That was the return earned by the market, as represented by the Dow index, reinvesting all dividends, and ignoring all expenses -- including taxes. Unfortunately, partly because of expenses, those returns do not accurately reflect

Saturday, October 1, 2011

September 2011 Stock Market Update

All-Time Low Treasury Interest Rates

You could argue that the biggest stock market story in September was the bond market! Even in the face of S&P's August downgrade of U.S. debt from AAA to AA+, treasury yields continued to decline. According to Bloomberg Businessweek, 10-year yields reached an all-time low of a bit under 2% on September 6. By the end of the month, the market had blown through that record, setting a new low of 1.72% on September 22.

Granted much of the action in the bond market was a flight to safety triggered by escalating fears about the worldwide economy in general and the European economy and Euro specifically. In addition, the Fed initiated Operation Twist -- still another form of