Over the past 10 years or so, the average total annual return on the 12 stocks we picked for them increased by about 10% annually. However, about half of that was being received in annual dividends, meaning that the value (or cost) of the stocks was inflating by about 5% per year.
While this might seem small, remember that we wanted them to have an adequate cash-flow for living expenses, and some nice extras in their retirement years, rather than having to scrimp and worry.
Using the 5% projected annual increase in value then, the expected value of this initial $200,000 stock portfolio is:
- In 10 years: $325,000
- In 20 years: $530,000
- In 30 years: $864,000
- In 10 years: $5,957
- In 20 years: $28,728
- In 30 years: $91,376 (loan payment has expired)
And again, this was all because they took a fairly modest risk at this time, using some leverage to buy a high yielding stock portfolio. We'll later examine this portfolio to see if it meets some basic criteria for diversification.
The Confused Capitalist