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Summary The problems of the $10,000 chart. A plan to micro-invest. Results using three broad market ETFs: The Average Joe Broad Market Portfolio. We’ve all seen the brochures and charts. Almost every ETF, mutual fund, and even portfolios (mock or real) on this website and others show the historical evidence of where we would be today if we had invested $10,000 at some point in the past with whatever financial investment the perpetrators are shilling at the moment. To make matters worse, quite often the comparison is made to one of the large indexes. This is not the real world. In the real world, there are expenses and more often than not, resources far less than $10,000 to invest in any particular method or investment. What we need is a real-world comparison that allows the average Joe know what the “true” benefits of a particular method may be. To that end, I introduce the Average Joe baseline comparison portfolio. This portfolio and methodology can be used by this viewing audience to answer those questions and show the readers that even small investors can create a plan that will provide them with wealth in the long run. Investing in small amounts — the micro-investment plan for the Average Joe The first part of any investment plan is coming up with the money. Most internet-based brokerages allow accounts with as little as $500.00 to open. My first assumption is that most people would be able to justify this level of investment. The second assumption is that people would be able to save and add small amounts each week to keep adding to this investment. For this part of the plan, add small amounts each week and slowly increase these amounts. Learning to save along the way with small incremental jumps will become easier with routine and time. The amounts will start out small, just $5.00 a week, and increase a dollar per week each year as they become accustomed to the savings routine. As time progresses, the amount per week will increase in increments. First jump will be to a $2/year per week jump, then $4, then $6. This is how the fund inflow will look for the first six years: Year Amount Yearly total Cumulative Total Initial $500 $500 1 $5 per wk $260 $760 2 $6 per wk $312 $1072 3 $7 per wk $364 $1436 4 $8 per wk $416 $1852 5 $9 per wk $468 $2320 6 $11 per wk $572 $2892 This continues with increase in weekly amounts every year as follows: Years Annual Increase Weekly Investment Amount Invested Cumulative Amount 1-5 $1 per wk $5-$9 $2320 $2820 6-10 $2 per wk $11-$19 $3900 $6720 11-15 $4 per wk $23-$39 $8060 $14780 16-20 $6 per wk $45-$69 14820 $29600 21-25 $8 per wk $77-$109 24180 $53780 Market representation A lot has been written on the relative merits of the big index funds. But the bottom line is that these funds have increased in value over a long-term span. They are not for the faint of heart (last week for instance) or for the typical trader. Sticking with the market has proven to be the way to go in the past. It is with this concept in mind that I chose the three large funds that represent the S&P 500 (NYSEARCA: SPY ), the NASDAQ (NASDAQ: QQQ ) and the Dow Jones Industrial Avg. (NYSEARCA: DIA ) to test out the real world gains offered by following the Average Joe investment method outlined above. Timeframe and investment rules SPY has been around since early 1993. DIA started in early 1998 and QQQ started in Q1 of 1999. So for this group, I chose a start date of January 1, 2000. I started a mock new fund every January 1 with the same three funds. I continued with each portfolio through the present time and re-invested all dividends. A Buy and Hold/DCA strategy was employed for the portfolios. The initial investment of $500 usually allowed an investment in all three ETFs to start. The investment strategy then allowed for purchase of additional shares as they could be afforded with the input and dividends, rotating the investment through SPY, QQQ and DIA (in that order). In cases where a difference in the number of shares purchased initially in each fund occurred, shares of the three funds were equalized before beginning the plan laid out in the chart below. As funds became available through the input of cash and dividends collected, shares in each fund were increased per the following plan: 1 purchase of 1 share, 2 purchases of 2 shares, 4 purchases of 4 shares, 8 purchases of 8 shares, etc. A retail commission of $7.00 per transaction was applied to all purchases. Current positions (shares) Fund Start Shares- SPY 8/24/15 Value Shares-QQQ 8/24/15 Value Shares-DIA 8/24/15 Value Cash on Hand Total Value 1/1/00 54 $10,758.96 55 $5,809.10 46 $7,648.42 $1,201.08 $25,417.56 1/1/01 46 $ 9,165.04 46 $4,858.52 46 $7,648.42 $ 313.11 $21,985.09 1/1/02 38 $ 7,571.12 38 $4,013.56 38 $6,318.26 $ 465.20 $18,368.14 1/1/03 39 $ 7,770.36 31 $3,274.22 31 $5,154.37 $ 101.40 $16,300.35 1/1/04 31 $ 6,176.44 23 $2,429.26 23 $3,824.21 $ 455.68 $12,885.59 1/1/05 23 $ 4,582.52 23 $2,429.26 19 $3,159.13 $ 498.35 $10,669.26 1/1/06 19 $ 3,785.56 19 $2,006.78 15 $2,494.05 $ 329.73 $ 8,616.12 1/1/07 15 $ 2,988.60 15 $1,584.30 11 $1,828.97 $ 634.48 $ 7,036.35 1/1/08 11 $ 2,191.64 11 $1,161.82 11 $1,828.97 $ 647.01 $ 5,829.44 1/1/09 11 $ 2,191.64 11 $1,161.82 7 $1,163.89 $ 519.69 $ 5,037.04 1/1/10 7 $ 1,394.68 7 $ 739.34 7 $1,163.89 $ 366.12 $ 3,664.03 1/1/11 7 $ 1,394.68 5 $ 528.10 5 $ 831.35 $ 24.84 $ 2,778.97 1/1/12 5 $ 996.20 5 $ 528.10 3 $ 498.81 $ 70.62 $ 2,093.73 1/1/13 4 $ 796.96 2 $ 211.24 2 $ 332.54 $ 150.61 $ 1,491.35 1/1/14 2 $ 398.48 2 $ 211.24 2 $ 332.54 $ 25.32 $ 967.58 1/1/15 1 $ 199.24 1 $ 105.62 1 $ 166.27 $ 164.47 $ 635.60 The gain or loss as well as other pertinent data on these funds is in the chart below. Fund Start Total $ Input Total Dividends Total Invested Gain/Loss Expenses Avg. Annual Expenses 1/1/00 $15,871.00 $2,006.55 $17,877.55 $7,540.01 $238.00 $15.11 1/1/01 $13,618.00 $1,650.44 $15,268.44 $6,716.65 $231.00 $15.66 1/1/02 $11,662.00 $1,375.10 $13,037.10 $5,331.04 $196.00 $14.25 1/1/03 $ 9,897.00 $1,204.07 $11,101.07 $5,199.28 $189.00 $14.82 1/1/04 $ 8,354.00 $ 914.52 $ 9,268.52 $3,617.07 $182.00 $15.49 1/1/05 $ 7,019.00 $ 721.47 $ 7,740.47 $2,928.79 $168.00 $15.63 1/1/06 $ 5,892.00 $ 558.19 $ 6,450.19 $2,165.93 $147.00 $15.08 1/1/07 $ 4,932.00 $ 425.41 $ 5,357.41 $1,678.94 $133.00 $15.20 1/1/08 $ 4,082.00 $ 328.14 $ 4,410.14 $1,419.30 $119.00 $15.35 1/1/09 $ 3,337.00 $ 273.66 $ 3,610.66 $1,426.38 $ 98.00 $14.52 1/1/10 $ 2,696.00 $ 184.04 $ 2,880.04 $ 783.99 $ 91.00 $15.83 1/1/11 $ 2,159.00 $ 118.80 $ 2,277.80 $ 501.17 $ 84.00 $17.68 1/1/12 $ 1,708.00 $ 78.07 $ 1,786.07 $ 307.66 $ 70.00 $18.67 1/1/13 $ 1,310.00 $ 41.44 $ 1,351.44 $ 139.91 $ 49.00 $17.82 1/1/14 $ 959.00 $ 17.36 $ 976.36 ($ 8.78) $ 42.00 $24.00 1/1/15 $ 665.00 $ 4.55 $ 669.55 ($ 33.95) $ 21.00 $28.00 As you can see, using this methodology, the Broad Market portfolios gain consistently except for the last two fund starts. Every other start since 2000 is profitable, averaging 7%-9% gains per year. The last two starts have obviously been hurt not only by the ongoing late August/early September topsy-turvy ride of the markets, but also by the heavy expense ratio seen at the early stages of this method. We now have a real-world comparison for the Average Joe to measure various other investments against: the Average Joe Broad Market Portfolio. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Long AAPL, IVR, PSEC, REM, ORC, LMLP, ECT, GOOD, SMHD, BDCL, MORL, CEFL, CYS, DVHL, ETV, GGE, and NSC Scalper1 News
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