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MY WIFE AND I are aiming to retire in 10 or 15 years. With the Dow Jones Industrial Average close to 35,000, I can’t help but wonder: At what level for the Dow can we retire?
Yes, I know the Dow is a terrible index. But it’s also the one that’s most commonly mentioned in the media. I’ve followed it for most of my life, so I’m much more emotionally tied to it than the S&P 500 or any other index.
We’re still socking away money for retirement, so our magic Dow number isn’t fixed. On top of that, the Dow companies are throwing off dividends that we’re then reinvesting, which further complicates the math. Currently, the dividend yield on the Dow stocks hovers under 2%, so it may have only a modest impact on our retirement number. Still, if I were gifted at math, I could probably figure it out. But since I’m not, I’m left trying to guess.
If the market were to double, we could certainly hit our goal and retire early. That would put the Dow at 70,000. But what if the Dow industrials were just 50,000 or 60,000? Would that be enough? Depending on how quickly it happens, the answer is likely “yes,” because in the meantime we’ll have saved thousands of dollars more, which will also be growing.
To be sure, these large numbers seem far off. But then again, it wasn’t too long ago that Dow 35,000 seemed unthinkable. When I started investing in 2007, the Dow was close to 14,000—and it went as low as 6,600 during the 2007-09 crash. We’ve come a long way.
I can’t tell you how quickly we’ll get there. But when you see the Dow 50,000 headline, think of me on the beach with a fruity drink. If you happen to walk by, I’ll buy you one, too.
I remember the big discussion in Econ 1B (Macro) about the Dow…this was in the mid-1960s. At that time, the Dow had been in the low 800s and and the discussion was whether or not the Dow would ever reach 1000. The Dow isn’t a fixed thing…there are only a few companies from the Dow of 1965 who are still in the Dow today. The Dow hit 1000 in November of 1972.
However, the value of the Dow or your investment portfolio is meaningless without some comparison to the cost of living. Since 1972, the CPI has increased at an average rate of 3.89%. The current inflation rate of 5.39% should have all of us worried.
Like you, doubling our assets would put us in good position to retire. I don’t find index values to be useful in personal planning.
Instead I like to calculate how fast our Retirement Funds and Net Worth are growing, that includes contributions, returns, everything – marked to market as best I can.
The 7-year rolling average compounded annual growth rate (CAGR) is 10.1% for our Retirement Funds, and 13.0% for Net Worth. (NW growth rate is higher because of RE and a business we own.)
This tells me our Retirement Funds should double in roughly 7 years (rule of 72) and our net worth should double in about 5.5 years. (There are caveats related to including contributions in that growth rate, but they aren’t material.) Averaging those numbers yields a little over 6 years before our assets may hopefully double. At that point, a 4% SWR would provide enough to live on until we claim SS.
Now, the next ten years may not be like the last ten, so I’m not going to assume retirement in 6 years or less… but it gives me an idea as to the trajectory we are on.
I too have crunched our numbers in about every retirement calculator out there. Thankfully we’re looking good.
Are you sure you want to stake your future on the Dow and not accumulated resources that can throw off income sufficient to maintain the lifestyle you desire for the rest of your life? That could have little to do with the Dow afterall. 🤑