A dramatic statement but actually, a relatively modest forecast. With the Dow currently at approximately 15000, a quadrupling in 20 years would require a compound average annual return of approximately 7%. Annualized total returns for the major averages, such as the S&P 500, Dow Jones Industrial Average, S&P Mid-Cap and Russell 2000 Small-Cap, have ranged from approximately 7% to nearly 10% for the 10 years and 20 years ending June 30, 2013. While the past is not necessarily a predictor of the future, in the context of historical results, a projection of 7% over the next two decades is hardly adventurous.
Ron Baron is the founder of Baron Capital Group, an investment management firm. In a recent interview he stated “the average mutual fund earns 7% per year”. He also pointed out that “Companies have almost doubled their earnings in the past 13 years while stock prices have increased only about 25%”. Mr. Baron went on to quote Albert Einstein who said “the most powerful force in the universe is compound interest”.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA