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Numbers to Live By

Jonathan Clements  |  November 26, 2015

CYNICS SAY there are three kinds of falsehood: lies, damned lies and statistics. Yet the right number can pack a mighty punch—and the financial world is full of them. Here are five examples:

1. Most folks don’t beat the market. Consider the miserable performance of most mutual funds. Standard & Poor’s found that 75% of actively managed U.S. stock funds failed to beat the market over the decade through June 30.

2. Stocks create amazing wealth, given enough time. Over the 40 years through Sept. 30, global markets climbed 9.6% a year, as measured by MSCI’s World Index. That’s enough to turn $10,000 into almost $400,000. An obvious conclusion: If you give up self-defeating efforts to beat the stock market, and instead simply capture the market’s performance using index funds, you’ll likely be thrilled over the long haul.

3. Houses don’t appreciate much. According to figures from Freddie Mac, U.S. home prices climbed 4.7% a year over the 40 years through Sept. 30, not much ahead of the 3.7% inflation rate. Sound grim? It isn’t as bad as it appears: Homes may not climb much in value—but they do give you a place to live.

4. Money doesn’t necessarily buy happiness. In 2014, 32.5% of Americans described themselves as very happy, below the 42-year average of 33.3%, according to the General Social Survey. Over this 42-year stretch, inflation-adjusted per capita disposable income rose 110%.

5. Many Americans face a grim retirement. The Employee Benefit Research Institute’s 2015 Retirement Confidence Survey found that 52% of workers age 55 and older had savings of less than $50,000. This figure excludes the value of their home, Social Security and any defined benefit pension plan. Yes, money doesn’t necessarily buy happiness. But make no mistake: Not having money could make you miserable.

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