Call him Ishmael. On New Year’s Eve, 1948, he is born at Mercy Medical Center in Des Moines. Ishmael’s parents scrape together a “pre–nest egg” of $3,000 out of savings and gifts from relatives. They invest the money in a mutual fund called Lexington Corporate Leaders, which has a portfolio assembled to reflect America’s industrial economy. When Ishmael is 12 years old, his parents tell him about the account but make him promise not to touch the proceeds until the last day of 2008, when he’s 60.
As it turns out, a severe bear market makes it a lousy time to crack open a nest egg; the market plunges 37% that year. Still, our New Year’s Eve baby does awfully well. Despite the turmoil, Ishmael’s stake grows to a bit more than $1.3 million. Today, thanks to the bull market that began in March 2009, the original $3,000 investment is worth more than $3.7 million. And those figures reflect the impact of a stiff frontend sales charge.
Ishmael is fictional, but his investing results are well within the realm of possibility. Professor Jeremy Siegel, of the University of Pennsylvania’s Wharton School, wrote an important book in 1994 titled Stocks for the Long Run. It made the case for long-term stock investing by showing that over lengthy periods, diversified stock portfolios consistently earned substantial profits. That’s still true. Between 1926 and 2016, there have been 72 periods of 20 calendar years (that is, December 31, 1925 to December 31, 1945; December 31, 1926 to December 31, 1946, and so on). Never has Standard & Poor’s 500-stock index or its large-capitalization predecessor recorded a loss over any of those 20-year stretches, and in more than half of them the average annual gain was in double-digit percentages.
Reclusive star. Right about the time Siegel’s book came out, a woman named Anne Scheiber became a legend. Scheiber was a reclusive government lawyer who lived in a studio apartment and subsisted on a salary that never exceeded $3,150 a year. In 1944, at age 50, she pulled together $5,000 and invested it in stocks. She reinvested the dividends but added nothing more, and when she died in 1995, her portfolio was worth $22 million.
This story is from the August 2017 edition of Kiplinger's Personal Finance.
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This story is from the August 2017 edition of Kiplinger's Personal Finance.
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