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In a previous article, A Day in the Life: Spinning Siegel, I explored some questions relating to what an investor may have experienced based upon investing in either stocks, bonds, a mixture of both, or simply placing money in a mattress. The study researched a long investment time period of 45 years to represent someone beginning to invest at 20 and finishing at 65. A question surfaced from that article to determine other timeframes, notably 25 year investment period and studying the differences in those values. Just to alleviate my own curiosity, I also calculated 30, 35, and 40 year data just to have a breadth of values between 25 and 45 year investment periods.
As a reminder, here are some assumptions from the study:
- Investor saved 10% of income per month for entire time period (25, 30, 35, 40, and 45 years)
- Investments do not include fees
- Dividends reinvested proportionally monthly
The calculations consist of the following over the investment period:
- Mattress: Saving 10% per month cumulative using median income
- Stocks: Saving 10% per month adjusting monthly for dividends and performance of S&P composite
- Bonds: Saving 10% per month adjusting each month for performance of 10 yr yield
- Stocks and bonds: Using 100 less age to allocate that much toward stocks (adjusted monthly)
The tables below show the tabulated results for each time period, both nominally and CPI-adjusted:
Clearly, stocks with reinvested dividends over every time period performed better than bonds using both measurements. The chart below highlights the 25 year investment time period with an adjustment from BLS CPI and shows the final amount an investor accumulated. The chart shows a continuous line for comparative purposes and should be interpreted as 75 separate individual investments.
Notice that an investor that began saving in 1987 and stopped in 2012 would barely have scraped a better return from stocks over bonds. Similar to all the charts though, anyone who began investing in 1976 and stopped in 2000 fared the best. Compare the CPI adjusted chart above with the nominal chart below.
The nominal series illustrates that, except for those who stopped investing between 1996 to 2006, investors could have picked either strategy and ended about the same. Comparing the CPI-adjusted and nominal chart reflects the erosion in final valuation of both methods.
The following chart depicts how many more or less dollars an investor would have gained with stocks over bonds. Again, the all-stock investor who stopped in 2000 netted $476,109 more than an all-bond investor.
Any number above the zero line shows how much the 25 year savings beat bonds and any number below zero shows how much bonds beat stocks for each individual time period. When stocks beat bonds, the mean equaled $122,927 above the final bond investment. When bonds beat stocks, the mean equaled $67,387 above that of stocks.
The nominal chart mirrors the previous chart but without the CPI adjustment. While the previous post on this topic covered the 45 year period and this post covered the 25 year period, readers may find the charts for all other timeframes here:
The following charts are included:
25 Year CPI Adjusted Chart 25 Year CPI Adjusted Stocks VS Bonds 25 Year Nominal Chart 25 Year Nominal Stocks VS Bonds 30 Year CPI Adjusted Chart 30 Year CPI Adjusted Stocks VS Bonds 30 Year Nominal Chart 30 Year Nominal Stocks VS Bonds 35 Year CPI Adjusted Chart 35 Year CPI Adjusted Stocks VS Bonds 35 Year Nominal Chart 35 Year Nominal Stocks VS Bonds 40 Year CPI Adjusted Chart 40 Year CPI Adjusted Stocks VS Bonds 40 Year Nominal Chart 40 Year Nominal Stocks VS Bonds 45 Year CPI Adjusted Chart 45 Year CPI Adjusted Stocks VS Bonds 45 Year Nominal Chart 45 Year Nominal Stocks VS Bonds