Sunday, March 8, 2009

Is $6600 Really That Low?

I know the state of the economy right now is troublesome to most people. Many people have investments that have lost half or more of their value. However, I don't think we're necessarily that far off from what we should expect. Take a look at the chart of the Dow Jones Industrial Average, below.

If we look at 1980, the Dow was around $830. A common number for the average growth of the market is 8%. So if we take $830 in 1980 and grow it at 8% for 29 years, it comes out to $7,733.34. This is higher than where we're at, but not too much higher. Even at 10%, we'd be looking at $13,166.37. I think the $14,000 range that the Dow was at previously (July 2007) was outside of the norm and that at least part of the drop in value is due to a correction back from that bubble. I know that won't do much to comfort those (myself included) who have seen a drastic drop in the value of their portfolio, but maybe it will help keep you from worrying too much about a total collapse of the market.

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