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| | Here's the Gist today Happy Tuesday Origin Member. The S&P 500 is often talked about as if it's the entirety of the stock market — and to be fair, it sometimes seems like it. But it hasn't always been that way. Can you guess when this index was created? A. 1933 B. 1957 or C. 1923 Here are the topics for today: - How Much Should We Actually Expect The Average Return to be?
- Our Best Tax Filing Tips as April Approaches
- Credit or Debit — Which Should You Use?
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| How Much Should We Actually Expect The Average Return to be? |
Projections are an integral aspect of financial planning, and missing the mark by too much can mean disastrous results for our future selves. Likely the most common assumption of all is a reliable rate of return on our investments. History tells us that the market (the S&P 500) has averaged about a 10% annual return over the last century, depending on how exactly you measure it. But, almost no one is investing for 100 years, and almost no one is only investing in the S&P 500. Let's look at some different numbers. - 100 years is a long time. Zooming in, we see that the S&P 500 generated average returns of 7.5% between 2018 and 2022, but 10.4% between 2013 and 2022. Going back to 2003, the average return drops to 7.6%, and further to 7.52% if we go back to 1993.
- What about others? The Nasdaq has managed a higher 10.4% average over the last 30 years as of last year, while the Dow Jones, which used to be the stock market benchmark before the S&P overtook it, has also managed a similar 8.7% average since 1998. What about the market as a whole? About 8.3% since 2001.
- Meanwhile, a 60/40 portfolio with 40% of its holdings in bonds has averaged about 8.11% over the last 3 decades.
- Target date funds are different. What you'll notice with these is that, the older they are, the lower the average return is. $VTTVX (2025), for example, comes in lower at 6.5% since inception, whereas $VTIVX (2045) comes in with an average annual return of almost 8%. This differentiation is caused by target date funds' drift away from equities over time — 46% of $VTTVX is now invested in fixed-income securities.
What to make of averages - The takeaway from all of these different numbers is this — the average return doesn't matter as much as what your portfolio is comprised of. Someone holding 90% equities into retirement may very well average an 8% to 10% return over the life of their portfolio, whereas an investor who shifts toward income over time will have a drag on their average return.
- While these might seem like minute percentile differences, they add up. Investing $500 per month for 40 years at an average return of 9% is $2,340,660, whereas doing the same with an average return of 7% is $1,312,406 — 2% made a million-dollar difference.
- What should I do with this information? Don't blindly assume your average return will be 10%. Take a close look at what you're investing in and find out, realistically, what you can expect the average annual return for that portfolio to be over a long span of time.
- As we've seen, missing the mark on this can result in ending up millions of dollars away from what you thought you would retire with. For some investors, it may be less of a difference, and for others, it could be more, but the difference matters for both.
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| Our Best Tax Filing Tips as April Approaches |
2024's tax filing season is well underway, and you don't want to be one of the millions of Americans who wait until the last minute to file. Save yourself the stress, get prepared ahead of time, and submit your returns early if possible. Mark your calendars for April 15th — let's review these quick tips to help you get ahead on your taxes, minimize your stress, and maximize your return. Heads up - Check to see if you qualify for free filing: A lot of tax services are advertised as free, but they rarely are in reality unless your tax return is very simple. Nevertheless, millions of Americans do qualify for these programs offered by the IRS and other third parties — don't pay if you don't have to.
- Keep track of documents as they come in, and have your docs ready to go before it's time to file. Stay organized by promptly tracking incoming tax documents, and ensure a smooth filing process by having all necessary documents ready in advance.
- Determine whether you'll be taking the standard deduction or itemizing: If your itemized deductions total less than $13,850 for single, $27,700 for married couples filing jointly, or $20,800 for heads of household, you're better off with the standard deduction, which means fewer papers to get in order.
- Use a checklist to help you get organized: Leverage a tax checklist to help you get organized and stay on track. If you're working with a tax preparer, share the checklist with them.
- Make IRA and HSA contributions as soon as possible: The deadline for contributing to an IRA or HSA for 2023 is April 15th, 2024. Don't wait until you get your taxes in to tackle those tasks. If you want to deduct your HSA or IRA contribution from your tax return for last year, you'll need to make that contribution before you file your return this year.
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| Credit or Debit — Which Should You Use? |
March is National Credit Education Month — yep, it's a thing. To kick things off slowly, we want to start with a basic question; are credit cards better than debit cards? While there might not be a perfect answer, there are still some important distinctions to make that can help us inform our personal preference. A little history Believe it or not, credit cards are older. Debit cards have been around since about the late 60s, and credit cards date back to the 1950s. Their popularity and usefulness have undoubtedly increased exponentially since then though, and so has the divide between those who swear by either. No matter which side you stand on, these two financial pioneers have almost single-handedly come together to crowd out cash lovers all together, and collectively tend to make up over 50% of purchases made. So, which is better? - Consider responsibility first: Look, both are great, but credit cards are much easier to abuse, so debit cards take this one. If you trust yourself to not overspend money that isn't yours, credit cards can be a big asset to you and your credit score if used responsibly.
- Security: Credit cards have this advantage over debit. They serve as a border between your personal money and the transaction and are much less stressful in the event of a stolen card or identity theft.
- Benefits: Credit cards win again here, by offering benefits ranging from cashback and bonuses to even phone insurance, it's clear that banks are willing to play ball just to get you to borrow money. (Hint: just pay it off before interest accrues.)
- Credit cards take the W from an overall benefits, flexibility, and functionality standpoint. However, debit cards still have their place in the world of transactions as a convenient replacement for cash.
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| By the way 📊 Answer: C. — 1923, but the index didn't expand to 500 companies until 1957. (Wikipedia) 📱 Most TikTok users aren't actually posting (Axios) 🏘 Get ready for 500 sq ft. subdivision housing (NYT) 🏡 Do your parents own a home? If so, you're more likely to own one too (CNBC) |
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