Investing Skeptically – Skeptical Review Of Charts.

Investing Skeptically is an ongoing education series.  This information is for educational purposes only.  This information does not constitute investment advice, legal advice or tax advice.  If you are in the need of financial advice please contact Phil Ferguson at Polaris Financial Planning.  (Polaris Financial Planning LLC, is a “fee-only” registered investment advisor and does not receive money from anyone other than the paying clients.  Polaris Financial Planning is committed to supporting the growing secular movement in the United States and donates at least 10% of all revenue to support this cause.)

The S&P 500 and Dow both achieved 5 year highs!  This has been on all of the news networks and it sounds really good – is it?  Let’s take a look at this 5 year chart from CNN.

Investing Skeptically 5 plus years

The Dow is now back to where it was 5 years ago.  So if you put in $10,000 5 years ago you would now (after 5 years off being underwater) finally have a little bit more than the $10,000 you started with.

But wait… did you notice?  That chart is longer than 5 years….  It includes part of 2007 all of 08, 09, 10,11,12, and about 6 weeks of 2013.  It is almost 5.5 years.  Yes it matters!  Markets go up and down so, the date you pick to start and end your data can give very different results.  Let me show you.

This next chart is from Yahoo Finance.  I like this because you can pick any rage you want.  Here is the Dow again – actual 5 years.

Investing Skeptically Dow 5 years

It is too small to read but 5 years ago the DOW was at 12,381.02 and now it is  14.035.67.  This is a 5 year increase of 13.36% (~2.5% per year).  Not fantastic but way better than the CNN chart would have you believe over 5 years.  Not I will start from that nasty little low spot in early 2009.

Investing Skeptically Dow 4 years

In this case the Dow went from 6,627 (yes 6 thousand) to 14,035.67.  In 4 years the DOW is up 111.80%.  (~21%per year).  So one could easily pick a chart that shows you would have made almost nothing in 5 (5.5 years) or over 110% in less than 4 years.  The amazing thing is …. They are all correct.

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