Should You Invest in the Dow Jones Today?

The Dow Jones is often seen as a stodgy, unexciting investment option. But did you know that the Dow probably will crush the best savings and CD accounts in the long run?

Mar 17, 2014 at 2:00PM


The stock market can help you build large savings stacks in the long run.

Is the stock market good for you? Should you invest in something simple like the Dow Jones Industrial Average (DJINDICES:^DJI) today, or is it better to stick with dead-simple options such as savings accounts and certificates of deposit?

For sure, the stock market is prone to wild swings. Who can forget the crash of 2008, when the Dow dropped 50% in just 15 months? Or the dot-com bomb in 2000, which left investors with negative returns until 2006? Clearly, the stock market is not the place for money you might need in the next year or two.

However, the stock market still tends to treat investors right in the long run. Over the last decade (which includes the 2008 crash), the Dow has delivered average annual returns of 4.5% -- or 7.5% if you reinvested your Dow dividends along the way.

Meanwhile, the most generous savings accounts in the nation offer something like 0.95% annual interest yields. Certificates of deposit don't do much better, topping out at 1.5%. A Jumbo CD with a five-year commitment improves on that meager return, but still stops at 2.25%.

So the average Dow returns over the last decade absolutely crushed the best savings accounts or CD investments available today. How big of a difference do these percentages make in the long run?

Translating annual yields into 20-year returns
Let's say that you're looking at a 20-year savings timeline, putting your $100,000 nest egg away until it's time to retire. A 0.95% savings account would end up being worth $121,000 at the end of that span.

Using CDs instead, you'd be looking at $123,000 at the end of 20 years. A Jumbo CD, which requires a starting investment of at least $100,000, could net you $157,000 in 20 years.

A plain Dow tracker, such as the SPDR Dow Jones (NYSEMKT:DIA) Diamonds ETF, would more than double your initial investment to $245,000, assuming that the next 20 years will be as rewarding as the last 10 years. Or, if you also reinvest your Diamond dividends in a DRIP-like plan, you'd more than quadruple your starting capital to $446,000.

^DJI Chart

^DJI data by YCharts.

The big payoff
Again, that's assuming the Dow stays at the average return of the last decade, which includes some of the worst annual returns in living memory. The dividend-adjusted Dow has gained 1,746% over the last 50 years for an average annual return of 16.2%. Revert to that long-term average, and you'd be sitting on $2.5 million at the end of 20 years.

^DJI Chart

^DJI data by YCharts.

There are no guarantees in the stock market, and the Dow may not jump back to those juicy 16% long-term annual returns. But even so, a 4.5% annual return could nearly double the best CD returns available today, or nearly triple the best CD yields if you take the time to start a dividend reinvestment plan.

Again, these returns don't even assume that you're beating the market. It's a simple Dow Jones-tracking investment, perhaps with the addition of a dividend reinvestment plan, and no need to actually pick stocks on your own.

If you absolutely need your nest egg intact in the next couple of years, the stock market and its potential for big price swings might not be your cup of tea. But if you have a decade or two to spare before heading into your golden years, it's really hard to beat the long-term returns of investing in the stocks market -- even if you're just staying with super-simple index trackers like the SPDR Diamonds.

Start investing today!
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days.

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4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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