As a financial planner, I spend a lot of time looking at charts. I’ve got pie charts and bar graphs and Gantt charts — every kind of chart you can imagine. But there’s one chart so indispensable I actually pay for it every year. It’s my Morningstar® Andex® chart — a comprehensive guide to 87 years worth of economic data, trends and history all displayed on a 16 by 11-inch foldout.
This chart tracks the history of $1 invested at the beginning of 1926 via a number of different vehicles. It looks at the current value (as of Dec. 2012) of that dollar, had it been invested in U.S. small stocks, U.S. large stocks, long-term government bonds and so on. The Andex chart also includes a record of inflation, recessions, presidencies, the cost of a first-class stamp, the price of gold, the average U.S. single-family house and even the top federal tax rate.
Here are just a few of the captivating facts revealed in the Andex. Pay attention: This is important, and it will make you far more interesting at the next cocktail party or cook-out.
From 1926 until the end of 2012, with all investments assuming no costs or taxes and all income reinvested:
$1 invested in long-term government bonds would equal $125 (5.7 percent per year)
$1 invested in 30-day Treasury bills would equal $21 (3.5 percent per year)
$1 invested in U.S. large stock total return index would be worth $3,533 (9.8 percent per year)
$1 invested in small stocks would today be worth $18,365 (11.9 percent per year)
Thanks to inflation, it currently takes $13 dollars to buy what one dollar bought in 1926. We can also look at this as a 3 percent annual erosion of our money’s purchasing power since 1926.
In 1926 a stamp cost 2 cents. Today, it’s 45 cents.
I counted 14 recessions since 1926. The prime interest rate has ranged from 2 percent in the 1930s to more than 20 percent in the early 1980s. Now it’s back to 3.25 percent today. How about tax rates? The top federal tax rate rose from 63 percent to 91 percent between 1935 and 1952. Today that number stands at 39.6 percent.
In 1981, a 30-year fixed mortgage had an interest rate of 18.63 percent. Today, it’s about 3.4 percent.
The Andex chart also tracks major upheavals and economic disruptions, which are indicated by black dots. Fourteen recessions; four major wars; Hurricanes Katrina, Rita, and Sandy; a Russian debt default; the collapse of Lehman Brothers and Bear Stearns; the Enron and WorldCom bankruptcies; the Great Depression, “Black Monday” in 1987 and the 9-11 attacks in 2001 are all there, along with every other low point in our history.
Charts don’t normally make me philosophize. But this one does. With the market hitting an all-time high of 15,000 last week, we need to keep some perspective on how much the world, economy and stock market change over long periods of time. More records will be broken, new technologies will emerge, more black dots will appear. The stock market will go up and down, and life will go on.
The long view is always the best view to take – in life and in investing.