I must say, that when I mentioned the 20% per annum number I was expecting a certain degree of "opposition".
It's not the first time I've had a similar discussion.
But no problem with that.
However, the main reason for my reply to gizwick was to emphasize what I believed was an important decision for a young man or woman to take with regard to their future financial well being, i.e. invest in the stock market.
As an aside, calculating an end result can sometimes depend on one's staring point.
I have no doubt that if one went back 10 years in the S&P 500 Index and calculated the annual compounded rate of return one would probably arrive at your figure of around 7%.
But .... one may want to bear in mind that 10 years ago the S&P 500 stood at around 1150. After about 4 years it had climbed to about 1600. It then took a ~50% dramatic nose dive, in just over a year, to about 740. That was 5 years ago in Feb. 2009. It now stands at about 1760. So it took quite a while to recover past that previous 1600 number.
So if one followed the lead of the 'old' Warren Buffett and did what he usually did, when the market was "fearful", and invested around the time when the S&P 500 Index was at around, say, 780 in March/April of 2009, one's current compounded Annual Rate of Return would be ...
(((1760/780)^1/5years)-1) x 100 = 17.7%. Somewhat greater than 7%.
So call me a liar for 2.3% !!!
But I guess that all depends on one's choice of numbers and circumstance that best suits one's proposition.
And there's also the possibility of the 'Stop Loss' principle. Who knows, a trailing Stop Loss of around 12% to 15% would have seen our young investor get out at around 1350 in mid 2008.
If I had to recommend anything to a young man or woman it would be to obtain some knowledge and understanding of the stock market, at their relatively young age, and how to analyse a company's fundamentals in order to better invest in a selection of companies.
In that regard I would point them towards Warren Buffett and how he goes about choosing companies in which to invest, See .....
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