Hoopla of S&P Hitting 1,700

Humans have a fascination with numbers. They play important roles in our lives, and in the development of language, culture and civilization. Pythagoras, a Greek philosopher best known for the Pythagorean Theorem, concluded that everything in the universe was a number.

So what about the S&P 1,700? We’re within a hair of reaching that level. It’ll represent the US stock market’s third peak in the past fifteen years (surpassing the 1,500-ish summits in January 2000 and July 2007). And 1,700 is about two and a half times the market’s worst in March 2009, and about 40 times since I was born. However, it’s just another number.

Here are more important numbers.

17,000 – That’s the S&P 500 level my daughter should see in 40 years when she’s most serious about her financial future. It reflects a 6% average annual growth rate – and excludes the roughly 2% dividend yield along the way. And I’d expect it to be a roller coaster ride – sans 4G turns and multiple inversions but scary nonetheless. It represents a permanent uptrend in the capital markets with expanding global wealth punctuated periodically by bear markets when wealth temporarily disappears. However, more important is for you to know Your Number – the amount of wealth you need to accumulate to support your lifestyle so that you never run out of money in retirement – and prudently manage.

5 – The number of fingers on your left hand and each represents a major asset class: US equities, foreign equities, bonds, real estate and commodities. And you slice and dice those into even more categories. But let’s stick to the five for simplicity. Prudent investors diversify. Water on a hillside naturally finds its course as it flows downhill. Capital too finds its course as markets and asset classes go in and out of favor. Currently the flow is into US equities. The tide will turn. You don’t know when or where it will next flow. Google “Callan periodic table of investment returns” and you’ll see the annual returns for key indices (for the past 20 years) ranked in order of performance. Can you find a pattern in the historical performances and rankings? What are your bets for next year’s rankings? It highlights the uncertainty inherent in the capital markets and the need for diversification.

50% or Zero? – Pensioners (e.g. PERS, teachers, etc.) have a big decision to make as they prepare their retirement paperwork. Their monthly pension amount is based on compensation, service, age, and if they want a survivor benefit. They’ll likely select “unmodified” if they want maximum benefit for their life only – perhaps they’re single, the spouse has sufficient independent resources, or they’re immortal. Others prefer to hedge their bets or protect their spouses and will elect a joint and survivor benefit so that their spouse will continue to receive a stated percentage (e.g. 50%, 75% or 100%) of the retiree’s pension at death. The decision largely requires a financial planning approach. If the spouse needs continuation of benefits, perhaps 100% is too rich (unless your life expectancy is short) and 50% too lean. It may take more than half for one to live than two (e.g. mortgage, rent, utilities, etc.).

1,700? Man’s also walked on the moon. What’s next? We want staying power. The S&P 1,700 is merely a milestone. The goals are to retire and stay retired, to serve greater purposes in life, and for wealth to endure for generations.

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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