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What is the Actual Rate of Return of the Dow Jones over the Last 40 Years?

What is the Actual Rate of Return of the Dow Jones over the Last 40 Years?

Posted by Joshua T Serpa on Aug 3rd 2021

In order to determine the actual rate of return (aROI) of any investment you must understand dollar inflation. 

According to the Federal Reserve Bank (The group that creates money) the M2 Money supply (all cash, plus savings and money market accounts) on my birthday in October 1977 was $1.254 Trillion dollars. Today it is $20.119 Trillion dollars. That is a growth rate of 6.54% annually.  You could say that 6.54% is the true rate of inflation over my lifetime in the past 43+ years.  There where times of higher inflation (late 70's and today 2020's) and there were times of lower inflation (2008-2013) but the average was 6.54%

If you look at the Dow Jones at the beginning of 1978 is was $817 dollars and today it is $34,838 which is an annual growth rate of 8.99%.

If you take the growth rate of the Dow Jones 8.99% minus the rate of money creation 6.54% you end up with a 2.45% actual rate of return. This is important to understand if you are borrowing money or lending money. Actual rate of return is also important if you are investing your capital for growth or savings.

From this fundamental basis we can analyze different asset classes to see if they meet, beat or lose compared to the 6.54% growth rate of the money supply.

Lets look at some other investments.

Gold from October 1977 to today went from roughly $152/OZ to $1811/OZ, which is a 5.82% ROI for a Negative Actual ROI of -.72%  This makes sense for a number of reasons. Gold is a store of value. An insurance policy for your capital and in my opinion highly undervalued at todays prices.  It basically does not generate a ROI it simply keeps up with inflation. Over the past 43 years it basically proved this function, though it seems like the true dollar value should be a bit higher.

Bitcoin from 2010 to today. Bitcoin was about .52 cents per bitcoin in 2010 and it is $38,435 today which is a 187% ROI for an Actual ROI of over 180% for the past 11 years.  Those are exceptional returns for any asset class and worth considering for capital deployment.  There are two ways you could look at this, first it is highly overvalued and second it will continue to grow at this extreme rate until something major happens. Those are two contrasting viewpoints but either way you look at it, Bitcoin is the 800 pound gorilla in the room. Its market capitalization is $720 billion dollars which is 20x larger than ADM which grows and sells over $78 billion dollars worth of food annually.  Bitcoin market cap is about 3x larger than XOM which extracts and refines over $280 Billion dollars worth of oil and gas annually.  Both ADM and XOM are operating in the real economy where Bitcoin is similar to gold as a store of value and to a lesser extent a currency.

Google from Jan. 2005 to today offered a 23.75% ROI for an Actual ROI of 17.21%.  These are very very good returns and likely to continue.  Google owns a vast percentage of the internet and will most likely increase its dominance. If Bitcoin is the 800 pound gorilla in the room, Google is the room. The risk to Google is the fact that it is a monopoly.  China is cracking hard on internet monopiles and I image "Sleepy Joe" will wake up and create this same anti-capitalist trend.

Visa from March 2008 to today offered a 22.68% ROI for an actual ROI of 16.14%  The long term outlook for this company is most likely good due to their market size and the fact that they make money every time you purchase anything. Relatively speaking. Also this ROI does not include the dividends paid by Visa which increase the Actual ROI significantly.

Nasdaq from October 1977 to today 12.01 % ROI for a 5.47% Actual ROI this is great for such a long term investment. If you are lazy and want a set it an forget it investment buy an index fund that tracks the Nasdaq.

Now lets look at one more asset, an AeroTray.  Lets look at the cost to setup an AeroTray and how much ROI you can create for yourself if you purchase and operate this product.  The AeroTray costs $1000 dollars, a good LED growlight is about $1000. You need a compressor and some other parts lets say another $1000 bucks. So your total investment is $3000 plus $50 a month for electricity. So your annual operational cost is just over $600.

Now how much revenue can you generate from one Aerotray?  With the Aerotray you can harvest every 2 months assuming you have fresh clones to drop in as soon as you crop. I have yielded up to 8 LBS per AeroTray but I'm an expert so lets be conservative and say 3 LBS per AeroTray per 2 months. This equates to 18 LBS annually. The current market price of indoor Cannabis is $2000 per pound. So a $3600 investment offers $36,000 return in one year. 

This is a 900% ROI or an Actual ROI of 893.46%.  That beats the inflation rate of the dollar, it beats Google, it even beats Bitcoin.  If you look at the actual ROI for year 2 it is significantly higher due to the fact you only have operational costs of $600 per year. You want a good investment, invest in yourself and your own production capacity. Just for shits and giggles lets look at romaine lettuce grown in an Aerotray.  The numbers much smaller but still impressive for what is considered a major commercial ag crop.

With romaine lettuce you can grow 25 Heads of lettuce every 4 Weeks. This equates to about 325 heads of lettuce annually. According to Wholefoods a head of lettuce is $2.30 (Todays price), the price in 10 years will be $4.33 per head of lettuce based on the 6.54% rate of growth of the money supply. This equates to a $747 annual revenue stream with a growth rate of 6.54%.  Assuming these numbers you will generate $11,514 over the course of 10 years. With lettuce, you would have to grow outdoors in a greenhouse to reduce electricity costs and then you will recoup you costs in less than 4 Years at which point you will be making money. On a ten year basis this is about 14.40% ROI for an actual ROI of 7.86% beating the rate of inflation and even the Nasdaq and Dow Jones Industrial Average.

The really good news is that you can eat a fresh home grown Caesar salad every day.....

PS: This is not investment advice, just a way to look at capital expenditures related to ag tech investments.