Comments on: Use Math To Alleviate Fear Of Stock Market Volatility

By: Darren

Darren — Sat, 12 Jun 2010 02:08:24 +0000

Greg, thanks for stopping by. I haven’t researched the performance of the Dow, but my guess is that over time the annualized returns are above average too.

Thanks for pointing out those stats, and good luck with the new book!

By: Greg McFarlane

Greg McFarlane — Sat, 12 Jun 2010 00:29:46 +0000

Thanks for doing the work. I noticed there’s only been one period where the Dow fell 3 straight years. It finished 2000 at 91% of its 1999 value, finished 2001 at 88% of its 2000 value, and finished 2002 at 78% of its 2001 value. Multiply it all together and it’s only a percentage point or so removed from how much the Dow fell in 2008 alone.

By: Darren

Darren — Sat, 05 Jun 2010 19:52:35 +0000

Thanks DIY Investor. I agree, knowing this will help them for the long term.

By: DIY Investor

DIY Investor — Sat, 05 Jun 2010 18:08:04 +0000

Nice presentation on something every investor should know.

By: House Flip Update / Weekly Roundup

House Flip Update / Weekly Roundup — Sat, 05 Jun 2010 09:04:43 +0000

[...] Use Math to Alleviate Fear of the Stock Market at MORE Than Finances [...]

By: Joe Plemon

Joe Plemon — Tue, 01 Jun 2010 20:08:20 +0000

Darren,
Thanks for offering to send me the excel file you used to calculate these numbers. I will gracefully decline. Part of me wants to study it (the math nerd) but the practical part of me tells me I can just accept the results and leave it at that. Still, I had never seen those calcs before and really appreciate this post showing how to do it.

Dave Ramsey has been saying for years that the stock market has averaged 12% return over the past many (75?) years. Based on the math of this post, I can see how he is probably right.

By: Darren

Darren — Tue, 01 Jun 2010 19:59:43 +0000

Joe – Thanks. I’m not sure WHY the math works, but are you asking HOW it works? I can send you the excel file that I used to calculate the numbers, or perhaps a screenshot if you’d like to see it. Rather than the normal arithmetic average of adding up the returns and dividing by the years, it’s a geometric return that has a few more steps to it.

Regardless, investing over the long-term as you said is the key.

By: Joe Plemon

Joe Plemon — Tue, 01 Jun 2010 19:38:20 +0000

Darren,
I am enough of a math nerd to be intrigued by the process of calculating annualized returns, but not enough of a math nerd to understand why the math works. Still, it is very helpful to see those averages over a 30 year period. Like you said, we can’t predict the future based on the past, but seeing this math makes me want to continue to invest regularly over a long period of time. Good stuff.