Market Metrics and The Cost of Coffee

The Dow, the S&P, interest rates, The Fed, Janet Yellen, Donald Trump, bubbles, Brexit, the Dollar, the Euro, China, the housing market, the credit crisis, gold, oil, GDP, TPP, and on, and on, and on… There is a lot of noise out there – A LOT OF NOISE. The good news? We can tune a vast majority of it out. In the grand scheme of things, all of this noise is short-term noise that should not distract us from our long-term goal – saving money on a long-term time span for retirement.

The information superhighway can create a lot of noise – photo by Thaddeus Lim

Honestly, 2017 might be THE WORST time to start an investing blog. Had I started this blog in 2009 it would be very easy to claim success today because it has been hard to NOT make money over the last 8 years in the stock market. Big money! Since the financial collapse of 2007-2009, the stock market has been on a record run. Not to get too political here, but our government has enacted crazy-aggressive policies to keep interest rates artificially low in an effort to force stock market returns to record highs. Now that we’re looking at a stock market reaching record highs, there is more noise than ever!

Relative to its historic level, the market is currently priced akin to a Gin & Tonic at a hotel mini-bar. It might be quality gin, but we’re paying top dollar. Looming interest rate increases combined with these expensive metrics in the market is going to make it hard for the market to go much higher. In fact, I would wager that the market might drop 10% or more before it increases another 10% from where it is now. Should this prevent us from starting or continuing our investing? No! We are going to commit to the next 10, 20, or 30 years. Short-term dips are not going to worry us. We’ll be prepared for them, we’ll ride them out, we’ll continue investing, and we’ll stay in for the long haul!

What is “The Market”?

The Dow” or the “Dow Jones Industrial Average” gets a lot of press. You’ll hear it on the news and radio everyday. It is a collection of 30 large companies used to track the market. Its slightly lesser known cousin is the S&P500, a larger collection of 500 companies, and the best representation of the US Stock market – a bellwether of the US economy. I make the S&P500 the mark to beat. Here’s why – If you take a look at the S&P500 as a long term goal, you’ll see that across any 20 year period, it’s best annualized return has been an average gain of 14.4% per year over 20 years, and its worst has been an average gain of 2.4% per year over 20 years.

stock traders

What does this mean? It means if we invest our money in the market, invest wisely for a long timespan, and attempt to track (or even beat) the S&P500 index, we stand a pretty darn good chance of making some money! What kind of money are we talking about? Let’s say you’re 30 years old. If you can pony up $1,000 to begin with and then contribute $200 per month while averaging 10% gains per year in the stock market, chances are you could end up with a quarter million dollars by age 55 and around $700,000 if you keep going to age 65! Start with more, start younger, or scrimp and save your money in order to invest more on a monthly basis and you could easily be a millionaire by the time you retire. What??? It’s doable, but we need to be smart with our money…

The Cost of Coffee:

Everywhere you look someone has a Starbucks* cup in his or her hand. At 4 bucks a pop + 5 days a week, that’s 80 bucks a month. Some folks are spending $1,000 a year on coffee, on a conservative estimate. You have expensive urine, my friend! You can make a latte yourself for about a buck. So let’s figure you drink the same amount of coffee but go DIY instead of employing a barista with a nose ring and a questionable mouth sore. If you do the math you’d save around 60 bucks a month by learning to brew a tasty treat on your own. Or hell, just buy a doppio (2-shot) espresso and slam it down for the same caffeine buzz minus the cost AND the calories.

expensive coffee
Expensive machines = expensive coffee…

If you’re able to take that 60 bucks you’re saving per month and invest it – for the long haul – you could turn that money you were going to spend on coffee into $125,000 or more after 30 years. You wanna buy your grandkids a nice graduation gift, or just tell them stories about all the time Starbucks got your order wrong? Personally, I love my iced lattes, but I build my own 90% of the time and I use that extra cash to fuel my retirement. We’re gonna learn how to save money in order to make money – and to be smart with our money!

Putting Together A Plan:

In my next blog I will point you toward simple, inexpensive, and efficient index funds that will track (or beat) the performance of the S&P500 and outperform about 90% of all the expensive money mangers trying to sell you mutual funds or trying to convince you they should call the shots for you. These index funds will be the core of our investment portfolio, and then in the future we’ll branch off (diversify) from there. We’ll also look at dollar cost averaging and what it means in terms of long term investing. All of that in 1,000 words or less and I’m at 1,005 right now so I’m shutting up.

Until next time – thanks for reading – leave a comment, I’d love to hear from you!


*disclosure – I own SBUX and as an investor I am confident in rampant & massive consumer consumption.


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