Unexpectedly Intriguing!
November 12, 2008

Bear!Yesterday, we featured a chart that shows how the sustainable component of corporate earnings, dividends, maps out the major phases of the Great Depression. Today, we're considering a related question: "What if you were an investor in the stock market through the worst of all that?"

To answer that question, we've built a tool to do the math! What we've done is to incorporate our historic data for the S&P 500 and use it to calculate the total value of a series of investments made each month in the months and years containing the worst-ever recorded period of time for investments made in the U.S. stock market.

In doing all that, we've made some assumptions for our hypothetical investment based on actual data:

  • The amount invested each month is held constant in terms of inflation. The value you enter in the tool is in constant dollars for the year in which the investment period under consideration ends.
  • The price paid each month is the average of that month's closing price per share for the S&P 500.
  • All cash dividends are fully reinvested.
  • Any commissions, fees, taxes or other transaction costs are paid by the hypothetical investor with money outside the investment.
  • The calculated investment values and the average annual rate of return presented are all adjusted for inflation. As with the amount entered, these values are presented in constant dollars for the year in which the investment period under consideration ends.

That might sound complicated, but all you need to do is enter the amount of months and years of investing before the all time bottom of the stock market was hit during the Great Depression, as well as the total number of months and years that you'd like to see the hypothetical investment run in total. Enter the inflation adjusted amount that you would invest in the S&P 500 each month, and we'll do the rest!

As for our default data, there's really nothing special about it. The default data is simply set up to correspond with a period of time consistent with the stock market hitting rock bottom just three years before a hypothetical investor might choose to retire and pull all their accumulated funds out of the market after a long career....

Investing Period Preceding All Time Stock Market Bottom Data
Description Years Months
Length of Time to Invest Before All Time Stock Market Bottom
Total Length of Time to Invest
Investment Data
Description Value
Inflation-Adjusted Amount to Invest Each Month*

Investing Period Data, Ending with Date of All Time Stock Market Bottom
Time Period for Investment Beginning Date Ending Date
Beginning, Ending Dates for Investing Period
Investment Values with Dividend Reinvestment at All Time Stock Market Bottom
Description Investment Value Total Invested Gain [+] or Loss [-] Rate of Return
Inflation-Adjusted Investment Values at All Time Stock Market Bottom*
* Investment values are adjusted for inflation to be current for the Ending Date.

In playing with the numbers coinciding with the stock market hitting its all time rock bottom during the Great Depression, we found that our hypothetical investor would be in the red for investments of 15 years and 3 months or shorter. With an investing period of at least 15 years and 4 months or greater, our hypothetical investor would at the least have the full amount of the money they invested, and frequently, a nice return - especially if they had been investing for much longer periods of time before the onset of the Great Depression!

Speaking of which, let's see next how much the investment you entered would be worth if you let it run for the full term you entered:

Full Investing Period Data
Time Period for Investment Beginning Date Ending Date
Beginning, Ending Dates for Investing Period
Investment Values with Dividend Reinvestment at End of Full Investing Period
Description Investment Value Total Invested Gain [+] or Loss [-] Rate of Return
Inflation-Adjusted Investment Values at End of Full Investing Period*
* Investment values are adjusted for inflation to be current for the Ending Date.

In using this tool, you'll want to tweak the time periods that you enter - you'd be amazed at how much a difference just six months might make!

For an upcoming project, we'll compare this worst actual case of stock market investing with an alternative investment!

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Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

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