Real Estate vs. Stock Market

User

You

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

ChatGPT

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:

  1. 1990 Starting Point: The S&P 500 started around 353 points.
  2. 2023 Endpoint: As of late 2023, the S&P 500 was around 4,300 points.
  3. 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:

  1. 1990 Starting Point: We’ll base this on general historical data that shows significant growth in U.S. housing prices since 1990.
  2. 2023 Endpoint: According to the Federal Reserve Economic Data (FRED), average U.S. housing prices have seen substantial growth, particularly in the last decade.
  3. 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. ​​

Khalil Gibran on Fear

💛

It is said that before entering the sea

a river trembles with fear.

She looks back at the path she has traveled,

from the peaks of the mountains,

the long winding road crossing forests and villages.

And in front of her,

she sees an ocean so vast,

that to enter

there seems nothing more than to disappear forever.

But there is no other way.

The river can not go back.

Nobody can go back.

To go back is impossible in existence.

The river needs to take the risk

of entering the ocean

because only then will fear disappear,

because that’s where the river will know

it’s not about disappearing into the ocean,

but of becoming the ocean.

~ Khalil Gibran

#KhalilGibran#EnglishLiterature

#philosophy#philosophyquotes

#Literature#Wisdom#quotestoliveby

Maslow’s Hierarchy of Needs

Guest:What are Maslow’s hierarchy of needs?

AI:

Maslow’s hierarchy of needs is a psychological theory proposed by Abraham Maslow in his 1943 paper “A Theory of Human Motivation”. It’s often depicted as a pyramid and consists of five levels of needs:

  1. Physiological Needs: These are the most basic needs that are vital to survival, such as food, water, sleep and warmth.
  2. Safety Needs: Once physiological needs are met, the individual’s attention turns to safety and security in order to be free from the threat of physical and emotional harm. This includes health, employment, property, family, and social stability.
  3. Love and Belonging Needs: These involve feelings of belongingness, love and affection. People need to have a sense of belonging with their social groups, whether these are families, friends, or colleagues.
  4. Esteem Needs: This level of need pertains to feeling accomplished and recognized. They involve the desire for reputation or respect from others, status, recognition, and respect from others.
  5. Self-Actualization Needs: This is the highest level of Maslow’s hierarchy and refers to the realization of a person’s potential, self-fulfillment, and the desire to become creative in the full pursuit of one’s passions and goals.

It’s important to note that, according to Maslow, an individual must satisfy lower level needs before they can move on to meet higher level growth needs. However, this theory has been evolved and refined over years, and the strict hierarchy is not always considered to be the most accurate model for understanding human motivation today.

6,467 Reasons to look at the expense ratios on your mutual funds according to ChatGPT.

User

You

Assume that I invested $10,000 in two mutual funds, one with a .17% expense ratio and one with a 1% expense ratio. Assuming annual growth of 8%, what would each fund be worth in 20 years?ChatGPT

ChatGPT

To calculate the future value of your investments in the two mutual funds, considering their different expense ratios, we’ll use the formula for the future value of an investment compounded annually:

𝐹𝑉=𝑃×(1+𝑟−𝐸𝑅)𝑛FV=P×(1+r−ER)n

Where:

  • 𝐹𝑉FV is the future value of the investment.
  • 𝑃P is the principal amount (initial investment).
  • 𝑟r is the annual growth rate.
  • 𝐸𝑅ER is the expense ratio.
  • 𝑛n is the number of years.

For your investments:

  • 𝑃=$10,000P=$10,000
  • 𝑟=8%r=8% or 0.08
  • 𝑛=20n=20 years
  • 𝐸𝑅ER is 0.17% (0.0017) for the first fund and 1% (0.01) for the second fund.

Let’s calculate the future value for each fund.

After 20 years of growth at an annual rate of 8%, the future values of your investments in the two mutual funds would be as follows:

  1. The fund with a 0.17% expense ratio would be worth approximately $45,164.
  2. The fund with a 1% expense ratio would be worth approximately $38,697.

The lower expense ratio results in significantly greater investment growth over the same period due to lower annual costs detracting from the compounding interest. This example underscores the impact of expense ratios on long-term investment returns.