It is January 15th, 1994, and an American, let’s call him John, is asking himself a fundamental and at the same time tricky question on the day of his thirties. How to secure for retirement. John has no idea that he will have to contend with a total of nearly 107 percent inflation over the next thirty years. On average, after 1994, prices in America rose by exactly 2.45 percent every year. In other words: in order for his $1,000 to be able to treat himself to the same full cart at the supermarket thirty years from now as he did then, and thus maintain his standard of living, his retirement investment had to earn him at least 2.45 percent a year. Anything above that percentage could then be seen by John as a bonus, a reflection of his long-ago successful decision to be better off in retirement than during his productive life.
A seemingly banal bet
John’s bet on retirement was seemingly banal and simple. In his investment, he decided to copy the American stock index S&P 500. It showed exactly 470 points on January 15, 1994. Some people tried to talk Johnny out of this strategy at the time. The aforementioned index had a 50 percent rally over the past three years, and there were voices here and there saying that American stocks are simply too expensive.
SPECIAL: How to insure yourself for old age?
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