Are you fortunate to be a young person
planning to retire in 30 years? All financial
advisers will tell you to invest in the stock
market now and enjoy wealth when you retire.
Here is a simple and rough estimate of your
future fortune.
Consider the Dow-Jones Industrial Index data from
1928-2008 (annual averages),
and put them on the logarithmic scale
(see Figure 1).
Perform linear regression on these data and find
the 95% confidence interval in 2038.
See the regression line and the endpoints
of the confidence interval in Figure 1.
If you invest 10,000 dollars now, you will have
between 27,000 dollars and 131,000 dollars in 2038.
The return on your investment will be between 170%
and 1,200%, with probability 95%.
Consider the Dow-Jones Industrial Index data from
1928-2008 (annual averages),
and express them in constant dollars
using the Consumer Price Index
(see Figure 2).
Perform linear regression on these data and find
the 95% confidence interval in 2038.
See the regression line and the endpoints
of the confidence interval in Figure 2.
If you invest 4,000 dollars now, you will have
between 3,800 dollars and 8,000 dollars in 2038.
The return on your investment,
in real terms, will be between 5% loss
and 100% gain, with probability 95%.
