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Five in the 500
Jan 30, 2013 - By Steven R. Peck
Follow along with our new investment experiment
The onslaught of news, statistics and analysis about the United States is unrelenting and expanding.
We're about to add to it.
Wednesday morning brought an announcement that the GDP, which used to be the GNP, had shrunk slightly last month. In a couple of months from now, a further backward glance will be cast upon the GDP, and it might be "revised" upward or downward. This often happens, meaning the much-reported, highly reacted-to announcement of today, which drove stock markets lower and dominated early news headlines, might prove to have been wrong.
For all we know the GDP actually grew in the last quarter of 2012. The quarterly "revision" will tell all. In the meantime, of course, the impact of the initial figure will ripple across the assorted gauges, indexes, news reports, business climate and the reactions of individual consumers.
Once upon a time the monthly unemployment rate as reported by the federal government was seen as the benchmark of the job outlook. Today, however, the weekly report on new unemployment claims is given equal footing in the eyes of many analysts and consumers. When the jobless rate drops, it's always countered with analysis of how many people might have quit looking for work.
On and on it goes. Inflation up? Yes, but the "core inflation" rate within it might be down. Consumer confidence down? Perhaps, but consider the weather. Jobless claims rising? OK, but only because of government layoffs. It's hard to know which way to turn when each piece of bedrock information is couched in terms seemingly intended to undermine its veracity.
In 2011 and 2012, we ran a yearlong experiment in this column in which we imagined making a $1,000 investment in the Dow Jones Industrial Average. It started when the economy was in chaos following the downgrading of the U.S. credit rating internationally by one of the three big rating authorities. The famed Dow average had fallen off a cliff.
So we started with the imaginary "thou in the Dow" the next day and watched it forever. It turns out that $1,000 would have brought a one-year return of about 11 percent, which is outstanding.
So we're trying another experiment this year. Let's call it "Five in the 500." Imagine you have $500, and you invest it in the Standard & Poors 500 index, which is a collection of 500 general interest stocks. Many market analysts say it is the most accurate reflector of the market-based economy -- better than smaller Dow Jones average, in other words.
We used the date of President Obama's second inauguration as our starting point, so the "Five in the 500" test has been running for a week already. It begins in a different climate from the Thou in the Dow experiment. The S&P 500 is now near its all-time high, not struggling to make a comeback, as the Dow was in August 2011. The economy is in recovery now -- not a spectacular recovery, but a recovery all the same.
Amid all the competing predictions, analyses and reactions to economic news based on human judgment and interpretation, the "Five in the 500" exercise might help cut through the opinions and get to the numbers. What will that $500 be worth a year from now? It will be easy to find out.
Now, the figures: $500 invested in a S&P 500 index fund on Jan. 21, the day of the inauguration, would be worth $507.27 as of Wednesday morning.
Follow along with us for the next 12 months. It should be enjoyable -- and it won't cost a thing.