cpi inflation adjusted sp500 chart
cpi inflation adjusted sp500 chart
http://www.businessinsider.com/this-is- ... ion-2012-9
I thought this chart interesting as we re-approach the nominal 1500s record.
- neurosphere
- Posts: 5205
- Joined: Sun Jan 17, 2010 12:55 pm
Re: cpi inflation adjusted sp500 chart
I always like to see charts like this which are inflation adjusted. I assume this is simply the index price, right? That is, it does not show the effect of reinvested dividends? Does anyone have a link to a chart of the SP500 WITH dividends and inflation adjusted?
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
- lauren_knows
- Posts: 193
- Joined: Mon Jan 28, 2013 2:11 pm
- Location: NoVA, USA
- Contact:
Re: cpi inflation adjusted sp500 chart
I'm still a fairly novice investor, but I never understood why charts would even exist without taking into account dividends. I mean, that is a major part of the return of some stocks/funds.neurosphere wrote:I always like to see charts like this which are inflation adjusted. I assume this is simply the index price, right? That is, it does not show the effect of reinvested dividends? Does anyone have a link to a chart of the SP500 WITH dividends and inflation adjusted?
41 - Married - 2 kids - Aiming for FI/ER in early 40s - Creator of cFIREsim
Re: cpi inflation adjusted sp500 chart
FRED's graphing tool is fun to play with. Their Wilshire 5000 data is total return.
http://research.stlouisfed.org/fred2/graph/?g=f5h
But I think growth graphs should be drawn with a log scale.
Ron
http://research.stlouisfed.org/fred2/graph/?g=f5h
But I think growth graphs should be drawn with a log scale.
Ron
Money is fungible |
Abbreviations and Acronyms
- neurosphere
- Posts: 5205
- Joined: Sun Jan 17, 2010 12:55 pm
Re: cpi inflation adjusted sp500 chart
That's a good idea, to use the Wilshire 5000 as a proxy for SP500 returns with dividends.
And the summary is that the value of the SP500, corrected for inflation, is only nearing its all time high if you take into account dividend reinvestment.
And the summary is that the value of the SP500, corrected for inflation, is only nearing its all time high if you take into account dividend reinvestment.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
Re: cpi inflation adjusted sp500 chart
Hold the bubbly. I calculated that, in inflation-adjusted terms with dividends reinvested, the S&P 500 would need to be at 1611 today to match the March, 2000 peak, and at 1592 today To match the October, 2007 peak.
We don't know where we are, or where we're going -- but we're making good time.
-
- Posts: 6993
- Joined: Mon Jan 03, 2011 8:40 am
Re: cpi inflation adjusted sp500 chart
Good question, but a bigger question I have is why do investors even look at the SP500 or wilshire 5000?? Is there anyone who has all their money benchmarked to that index??boknows wrote:I'm still a fairly novice investor, but I never understood why charts would even exist without taking into account dividends. I mean, that is a major part of the return of some stocks/funds.neurosphere wrote:I always like to see charts like this which are inflation adjusted. I assume this is simply the index price, right? That is, it does not show the effect of reinvested dividends? Does anyone have a link to a chart of the SP500 WITH dividends and inflation adjusted?
It would seem looking at any of these types of arbritrary benchmarks only has negatives, which is INCREASING frame of reference risk.
The fact I follow MPT and diversify AUTOMATICALLY means a random benchmark like these are totally useless.
Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” |
-Jack Bogle
Re: cpi inflation adjusted sp500 chart
I can only assume that the person who made the chart to take into account inflation but not dividends did so deliberately to make a political point (maybe to buy gold?)neurosphere wrote:I always like to see charts like this which are inflation adjusted. I assume this is simply the index price, right? That is, it does not show the effect of reinvested dividends? Does anyone have a link to a chart of the SP500 WITH dividends and inflation adjusted?
What's interesting is that in broad terms the dividend payout tends to be fairly similar to the inflation rate. The chart of the inflation-adjusted total return is not too dissimilar to just the index value. So just a chart of the index ignoring both inflation and dividends tends to not be too far off the mark, in spite of the obvious methodological flaws.
The coincidence of inflation rate and dividend yield also held in the 1970s: both of them were much higher than they currently are.
Most of my posts assume no behavioral errors.
-
- Posts: 49035
- Joined: Fri May 11, 2007 11:07 am
Re: cpi inflation adjusted sp500 chart
I do not have the time, but there might be an academic paper in this!baw703916 wrote:I can only assume that the person who made the chart to take into account inflation but not dividends did so deliberately to make a political point (maybe to buy gold?)neurosphere wrote:I always like to see charts like this which are inflation adjusted. I assume this is simply the index price, right? That is, it does not show the effect of reinvested dividends? Does anyone have a link to a chart of the SP500 WITH dividends and inflation adjusted?
What's interesting is that in broad terms the dividend payout tends to be fairly similar to the inflation rate. The chart of the inflation-adjusted total return is not too dissimilar to just the index value. So just a chart of the index ignoring both inflation and dividends tends to not be too far off the mark, in spite of the obvious methodological flaws.
The coincidence of inflation rate and dividend yield also held in the 1970s: both of them were much higher than they currently are.
If you have a friend who is a finance professor, get him to look into this.
The underlying dependencies are:
- dividends are paid out of corporate earnings, which themselves are sorta kinda dependent on inflation (ish). We'd need to look at payout issues ( dividend per share/ earnings per share)
- there may be something about investor expectations, that as long as current income covers them against inflation, they are prepared to hold on to this long term investment that has truly volatile prices
I have nowhere near enough knowledge or skill to investigate this further, but 'coincidence' can turn out not to be.
Re: cpi inflation adjusted sp500 chart
Hi valuethinker,
Actually, I was using "coincidence" in the sense of the two coinciding, i.e. taking on similar values. I agree there might be some deeper reason why this isn't accidental.
I don't really know what that reason might be.
Brad
Actually, I was using "coincidence" in the sense of the two coinciding, i.e. taking on similar values. I agree there might be some deeper reason why this isn't accidental.
I don't really know what that reason might be.
Brad
Most of my posts assume no behavioral errors.
Re: cpi inflation adjusted sp500 chart
I have thought this many times over the last 10+ years; hanging in there with my stock allocation where it is because I'm at least not being eaten up by inflation.Valuethinker wrote: - there may be something about investor expectations, that as long as current income covers them against inflation, they are prepared to hold on to this long term investment that has truly volatile prices
Re: cpi inflation adjusted sp500 chart
So your purchasing power has doubled over 20 years, a full generation.LH wrote:
http://www.businessinsider.com/this-is- ... ion-2012-9
I thought this chart interesting as we re-approach the nominal 1500s record.
While it doesn't include dividends, it also doesn't include a couple other factors that would serve to lower returns: fund expenses & taxes. For the typical fund investor expenses would be a major issue as would taxes given how many funds churn their portfolio for maximum tax inefficiency. Obviously, Vanguard funds aren't typical in either regard.
Re: cpi inflation adjusted sp500 chart
One thing I like about the growth with dividends and inflation is I can look at any point and say "Money I invested here has grown", and sometimes "Money I put in here is down". I can see long stretches where money has grown very well and only a few times where money is down, but only down a little.
Of course if we get another crash this year the picture will change, but for now over the last 23 years I have been investing it is a positive picture.
Of course if we get another crash this year the picture will change, but for now over the last 23 years I have been investing it is a positive picture.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
Re: cpi inflation adjusted sp500 chart
Yeh, but not everybody is investing more. There are a few of us trying to live off our portfolios, and it doesn't help when the real value of equities has gone nowhere in 14 years.Rodc wrote:One thing I like about the growth with dividends and inflation is I can look at any point and say "Money I invested here has grown", and sometimes "Money I put in here is down". I can see long stretches where money has grown very well and only a few times where money is down, but only down a little.
Of course if we get another crash this year the picture will change, but for now over the last 23 years I have been investing it is a positive picture.
We don't know where we are, or where we're going -- but we're making good time.
Re: cpi inflation adjusted sp500 chart
Yes, I imagine that is true and that current low yields are another blow.Browser wrote:Yeh, but not everybody is investing more. There are a few of us trying to live off our portfolios, and it doesn't help when the real value of equities has gone nowhere in 14 years.Rodc wrote:One thing I like about the growth with dividends and inflation is I can look at any point and say "Money I invested here has grown", and sometimes "Money I put in here is down". I can see long stretches where money has grown very well and only a few times where money is down, but only down a little.
Of course if we get another crash this year the picture will change, but for now over the last 23 years I have been investing it is a positive picture.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
Re: cpi inflation adjusted sp500 chart
Well, there is a subtle conflation here amongst posters.neurosphere wrote:That's a good idea, to use the Wilshire 5000 as a proxy for SP500 returns with dividends.
And the summary is that the value of the SP500, corrected for inflation, is only nearing its all time high if you take into account dividend reinvestment.
1) The worth of the SP500 on a given day, compared to another given day --- should be inflation adjusted, but not include dividends ( "value of the sp500")
2) The worth of an investor who invested in the sp500 on a given day in the past, up to the current day, should be inflation adjusted, and included dividends. ("value of the sp500" to an investor over given period of time)
The dividends paid out, in the past, by the SP500 is a "sunk cost" in terms of what the sp500 is worth at any given momement in time, they are gone already, past dividends has no bearing on current SP500 level.
So to see if the market is worth, what it was worth at some point in the past, you use an inflation adjusted sp500 chart, that ignores dividends. If you want to see what an investor did in the market, use a total growth chart.
So I would say if you are talking about the current value of the sp500, ie, the amount you would pay to purchase a unit share of it going forward, the past dividends are irrelevant, and even if you say they are relevant to you in your future guess, they are certainly not additive per se.... what would be the start date?
Take PG stock, one does not add up the dividends paid out since inception of PG, add it to current stock price, and say PG is worth that now. One just takes the current price of PG in the market, thats what it is worth. PG comparison to past PG in presence of nonzero inflation needs inflation adjustment, but no addition of dividends.
A proctor gamble investors gain from pg, one would take dividends into account, using start date of investor time, and using weights of stock held at given time, in additive fashion. This would yield a nominal gain, as I think, inflation is ignored in these total return charts.
So to really see ones gain from investing in a point in time in sp500, one would have to use a total return chart, and then adjust it for inflation I think.
Another example from another poster:
"So your purchasing power has doubled over 20 years, a full generation."
I know what he means, and he knows what he means but no, your purchasing power has not doubled, this is a conflation, what has doubled is the cost of buying or worth of selling the market. The chart measures the cost of the market, not "your purchasing power", which, as the poster goes on to state, encompasses fees and dividends. Also, points of entry.
You basically would need to do an Internal rate of return, all input amounts and dates of input, and the ending amount of the account to get what an investors purchasing power actually did. Which encompasses all the fees and such in the IRR black box. Then I think about inflation adjusting.... makes my head hurt. As the input dollars, are worth more than the ending dollars.... one would have to inflation adjust each input, in terms of current dollars, then do an IRR I think.
Re: cpi inflation adjusted sp500 chart
I don't buy individual stocks, but if I did I imagine in deciding a fair price I would need to estimate both expected growth in stock price over time and future dividends over time. That is I would want to estimate total return. So I would not do what you suggest I should not do (ie I agree with the quote), but I sure would not ignore dividend history in the process of deciding on an acceptable price of a stock.Take PG stock, one does not add up the dividends paid out since inception of PG, add it to current stock price, and say PG is worth that now.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.