|Articles|September 16, 2008

Physician's Money Digest

  • September30 2004
  • Volume 11
  • Issue 18

Gloomy Number Forecast

Tip:

Back when stocks were yielding20% a year, market bears noted that thehistoric return on stocks was around8% to 10% a year. Now that the stockmarket has fallen into a stupor, optimistspoint to the same historic returns.But even at 10% a year, you'll realizethe stock market hasn't been a terrificinvestment once you start crunching thenumbers to account for inflation andexpenses. Take, for instance, the 10.4%average annual return from 1926through 2003. Back out the inflationrate, taxes, and brokerage commissions,and then adjust for some badstock picks. The resulting final averageannual yield gets pared down to a scant2.4%. You can't do much aboutinflation and taxes, but you can paredown expenses and avoid picking individualstocks that turn turkey byputting your money into a low-costindex mutual fund.

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