A couple things I figured I should address after reading the comments:
1) Yahoo!'s historic S&P 500 data does not factor in dividends. So the returns would likely be 1-2% higher each year (which over time makes a very big difference). I should probably add a note on the page mentioning this.
Here was my conundrum when making the tool: I picked the S&P 500 because it's the only index that allowed me to pull very, very old data (nearly 70 years) using Yahoo! Finance; plus, it's often the "go-to" index for discussing overall market performance. But it's not "real" in the sense that you can't actually buy shares, and it doesn't pay dividends. So I could make up my own method for factoring in dividends, but I wanted to go strictly by the numbers. When you factor in financial advisor fees / bad decisions that new investors make, it's probably enough to "counter" the lack of dividends, if you want to look at it that way.
Plus, sites / companies are notorious for over-stating how much you can get annually by investing. I'd prefer to under-state it, if anything. Don't want to sell false hopes.
2) Regarding incremental, small deposits (and potential transation fees)... it's actually very easy to set up auto-investments in index funds that match the S&P 500 without ever incurring any fees. You could do $31 on the first of every month and basically simulate this.
3) Inflation would be useful to factor in, but it would also add confusion. This could be a cool add-on, but I'd have to think about the clearest way to demonstrate it. So would the 1950 daily amount be equivalent of $1 today? (so I'm guessing 20 cents or so?)
Hope you guys enjoy the site. Feedback is great (positive or negative - I'm not sensitive).
You may want to look at Robert Schiller's (of Case-Schiller index fame, among other things) data set available here: http://www.econ.yale.edu/~shiller/data.htm He has S&P dividends by quarter back to 1871.
Fees do make a difference, though they are pretty small in e.g. VFINX -> VFIAX. If you want to be super realistic you could build up the dollars a day at say the federal funds rate until you hit the VFINX minimum, then accumulate $100 batches at that rate before investing them in the S&P 500. Once the account hits VFIAX switch to that for fees. There's also taxes but that's just a mess because there are so many possible scenarios. Probably this whole paragraph is just overkill.
As for as inflation goes, the big thing is not the current amount of money, which after all is today's dollars and so easy to understand, but to try to get across the fact that in 1950 $1 was a heck of a lot more than it was today (about $10). Still not a huge amount of money perhaps, but not something you would just drop in a tip jar either.
That also gets to the point that is kind of a crazy investment strategy. In real terms you are investing the most when you are least able to afford to. Since it isn't supposed to be a serious strategy, instead more of something to think about that's no big deal, but it's worth noting.
It's fairly straightforward, but if you want a script to start you off, here's a little something I wrote in perl for my own fun: https://github.com/Amorymeltzer/sandbox/blob/master/inflatio...
And I think it illustrates that it doesn't have to be a "lot" of money to make a big difference over time.
It's also rather misleading, as you point out, because you can't invest $1 (or often even $31 a month). I assume you have seen the mr. money mustache (MMM) web site. His approach to communicate the value was to discuss mutual funds which reflected broad diversity in the market. Many of them have quite long histories as well. Of course with mutual funds you have to factor in taxes (which is really hard to do in a general way) since funds transact sales and that results in the realizing of short and long term gains and losses.
Aside from the difficulty of actually investing $1 a month I found the visualizations excellent and the floating bubbles pretty cool too.
http://finance.yahoo.com/q?s=%5ESP500TR
S&P 500 Total Return Index. Calculated intraday by S&P based on the price changes and reinvested dividends of SPX <INDEX> with a starting date of Jan 4, 1988.
Your webpage gave me a screen takeover popup that was unavoidable on my phone :/ Even hitting back button would re-launch the popup.
Chrome on iOS if it helps.
So that's why I'm leaning toward still using the S&P500 data, but adding an "average" dividend payout each year (which I'll do some research on.. guessing a little over 1% a year).
I believe that CRSP [0] has historical indices that do include dividends.
I have a Sharebuilder account, but would there be a better site to do this from nowadays? Preferably with a good companion app?
That said, investing a dollar a day on behalf of your child and tracking the progress of the account with them over time would be a cool way to teach them about money. You could even give them the option of instead of receiving some portion of an allowance, invest that as additional money into the account. There's all sorts of possibilities.
You could even offer to let them withdraw the dividend each month as an allowance or let it reinvest.
Take someone who was doing pretty good during the tech and real estate bubbles, and decided to invest their spare change in 1998, 1999, 2005 and 2006, but did not invest in the "leaner" years. I bet that person overall would have lost money on the stock market. Oh, wait, I can tell you that that person would have lost money, because it was me!
I'm so tired of the constant drum-beat of "The only way to retire is to invest in the stock market!!" that only seems to serve the interests of Wall Street. I wish there were viable alternatives.
Of course it also means accepting a lower spending rate in one's life.
[1] http://awealthofcommonsense.com/2014/02/worlds-worst-market-...
Start here - https://www.bogleheads.org/
There's no way you lost money if you were in the S&P 500, unless you were pulling it out of investments after crashes - in which case, duh, you're buying high and selling low, what did you expect?
And that's if you were only in the S&P 500... a more reasonable retirement portfolio is much more diversified, which would have increased your returns and lowered your volatility.
If anything, during good times it may make the most sense to store value in liquid accounts and wait for fire sale prices when the economy craps out. But some consistent growth is better than none, due to dollar cost averaging (i.e. you don't know whether asset prices are going to go up or to go down) [1].
1. Online brokers, starting in late 90s, lowered retail trading fees, made access easier. 2. low-fee, highly liquid, highly competitive ETFs give anyone cheap exposure to the broader market indicators, like S&P 500.
So an ROI calculation from the 1970s is mostly academic, but I guess illustrative of what you might be able to get using that same approach over the next 30-40 years.
My mother took us to the local bank one Christmas when we were children and put $100 each (interest rates were at a peak) into our accounts "so that we could learn about money". Five years later, we went back and found the bank had emptied the accounts steadily each month until nothing remained. The kind man who'd once helped us open the accounts was very apologetic about it, but explained there was nothing he could do to get it back.
That experience did teach me something about money, that you can't always count on it to be there and to be careful to whom you entrust it, but it also taught me about the banking system and saved me from simple mistakes I saw my peers making as I got older. I wouldn't have started investing so young if banks had never put a sour taste in my mouth.
http://www.npr.org/sections/money/2016/03/04/469247400/episo...
$1 in 1996 was a bottomless plastic cup of PBR. Also well worth it.
$1 is 2011 is the cost of an overnight diaper that my three year old son throws away in the middle of night because he says he doesn't like it.
My dad was banker and a saver so I grew up valuing saving just because. Like others here, the site makes it easy to understand how saving (as I read it, and yes, I know there is a difference) can yield lots of money! Now to share this with those in the social services world in DC so they can use it in their financial ed classes.
But on the positive side, the amount didn't double every day or you'd seriously distort the stock market in a matter of weeks.
http://www.nytimes.com/interactive/2011/01/02/business/20110...
There are a lot of index funds, for no apparent reason the first one I checked was VFINX and it's annual expense ratio is 0.17% which is pretty low compared to the average return over the past 90 years around 10%.
So the actual result would be a little lower, although not staggeringly so.
What would this look like with government bonds?
They ignore the dividends that are paid on your capital, which is a significant portion of your growth, often even more than the capital gains.
For me, the stocks would be ~$260K. Simple interest (7%) would be $207K
Yes, people have done well in the past, but I believe it's entirely possible for median market gains to disappear in the near future as this inefficiency is removed: We're seeing the start of this right now, in the way many of the more desirable "unicorns" are relying mainly on private equity and loans.
[0] https://bigfuture.collegeboard.org/pay-for-college/college-c...
Select public in-state college, and 18 years from now, 4 year, it will cost $225K. Better get saving!
College in my country is free if you want to (but many people, including myself, believe you're better off going to a private, paid university anyways, for most careers).
> I didn't have that much money when I was a child
> it was hard to invest in the S&P 500 until recently
A lot of you are missing the point. toado85 clearly made this to illustrate the behavior of the stock market in the long term; it's not a suggestion that you literally do what the hypothetical investment is doing.
