Forum Archive Index - May 2001

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Hi Biron,
>
> I have set myself the goal
> of achieving an average  return of 20% per annum (including
> dividends and allowing for brokerage) for the next 15 years.
> Obviously some years I will get nowhere near 20%, whereas in some
> years my returns will be much higher. As an example, in the 12
> months to 31/3/01 my total return was only 9%. However in the
> prevous 12 month period my return was 45%
> 
> I would be interested in the opinions of others, on if you think
> that averaging 20% per annum over the long term is achievable. Am I
> being too ambitious? Perhaps aiming to low?
> 
20% over 15 years compounding is 1.2^15= 15.4

Let's say the average US company pays a 3% dividend per year, which 
means a capital growth component of 17% per annum.

17% compounding over 15 years is 1.17^15= 10.53

This means you can expect your capital to be multiplied 10.53 times 
by the year 2015.

One way to check if this strategy is realistic might be to go *back* 
15 years.   Let us imagine it is 1986 and you start your strategy.  
Of course what makes this question interesting is that we know 
what will happen.  The DOW is now 11,000, so for your goal to work 
you would have to have started from a base of 11,000/10.53= 1044 in 
1985.

So was the DOW around 1044 in 1986?

And given that this 15 years included the longest financial 
expansion in US history is this 15 year period a reliable future 
indicator for future 15 year periods?

If you can answer those questions, you will probably have the answer 
to your own. SNOOPY




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