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Pretend I invested $10,000 in the stock market and $10,000 in real estate in 1990. What would each investment be worth today?ChatGPT
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To estimate the value of your investments in the stock market and real estate from 1990 to today, we’ll need to consider the average annual returns for each sector over that period.
Stock Market Investment
For the stock market, a good proxy for general market performance is the S&P 500 index. According to historical data:
- 1990 Starting Point: The S&P 500 started around 353 points.
- 2023 Endpoint: As of late 2023, the S&P 500 was around 4,300 points.
- Average Annual Return: The annual return of the S&P 500, including dividends reinvested, averages about 10% per year over long periods.
Using this average return, we can estimate the growth of a $10,000 investment in the stock market from 1990 to 2023.
Real Estate Investment
For real estate, the U.S. national average can be considered through indices like the Case-Shiller Home Price Index:
- 1990 Starting Point: We’ll base this on general historical data that shows significant growth in U.S. housing prices since 1990.
- 2023 Endpoint: According to the Federal Reserve Economic Data (FRED), average U.S. housing prices have seen substantial growth, particularly in the last decade.
- Average Annual Return: The average annual return for real estate varies by location, but a national average might be around 4% per year.
We can calculate the estimated value of a $10,000 real estate investment using this average return.
Calculations
Let’s calculate the compound growth for both investments over 33 years using the formula:
Future Value=Present Value×(1+rate)number of yearsFuture Value=Present Value×(1+rate)number of years
Stock Market:
Future Valuestock=$10,000×(1+0.10)33Future Valuestock=$10,000×(1+0.10)33
Real Estate:
Future Valuereal estate=$10,000×(1+0.04)33Future Valuereal estate=$10,000×(1+0.04)33
Let’s perform these calculations to see the estimated current values of these investments.
Based on the average annual returns over the past 33 years, the estimated values of the investments would be as follows:
- Stock Market: Your initial $10,000 investment in the stock market would have grown to approximately $232,252.
- Real Estate: Your initial $10,000 investment in real estate would have grown to approximately $36,484.
These estimates show that the stock market, particularly when tracked through an index like the S&P 500, would have provided a significantly higher return compared to the average real estate investment over the same period. This disparity highlights the higher average annual growth rate of the stock market, which includes the compounded effects of reinvesting dividends.