Wilshire 500 Index vs Savings Account Rates
August 19, 2007
The Dow Jones Wilshire 5000 Index is sometimes called the Total Stock Market Index because it aims to track the returns of practically all the publicly traded, U.S. stocks that trade on the major exchanges. Currently there are over 6000 companies tracked by the index making it the largest index by market value in the world and a comprehensive comparision of stock market performance.
The Year-to-Date Return of the Wilshire 5000 after Friday's close was a paltry 1.92% with a 52-week return of 11.60%. Compared to the easy attained 5.50% yield available on FDIC-insured bank deposits, 4.75% yields on Treasury Bonds, 5.00% yields available on money funds, the returns on the Wilshire Index do not seem to justify the volatility and inherent risk. Brokers are oft to quote the historic stock market returns which while impressive do not include commissions, fees, and most importantly does not accurately represent the average individual investor. While indexes and institutional investors (for the most part) are resilient to market downturns, individual investors are subject to what John Maynard Keynes called the "animal spirits" of investors or the inability to buy-and-hold (like an index), but actively trade based on market psychology.
Savings Investors who buy Treasuries, AAA-rated bonds, bank deposit products, commercial paper, and mutual fund money market may take their 4% to 6% returns with their minimal risk and rest easier than the stock market investors who are wondering if their returns will be positive for 2007.
