Three’s not even a crowd

I saw a statistic recently that between 1892 and 2012 the stock market rose 9 per cent a year. I thought that was a huge annual increase, far beyond what I’d ever heard before, so I asked a group of friends who have worked on Bay Street for their thoughts. Yes, they said, that sounds about right, but don’t forget that’s a gross number. You have to subtract fees, take account for inflation and pay taxes. The real number, net, net, net, as they said, is more like 3 per cent annually.

Three per cent! Such a low result came as a surprise to me. And if it’s new information to me, someone who has been a business journalist for more than 30 years, I can only assume that few others know that’s what passes for performance. I pressed my friends, saying surely I’m missing something, say it isn’t so. “No,” they said, as if I should have been aware of this fact all along, “that’s the reality.”

Imagine the empires created and the effort expended so that investors can earn a piddly 3 per cent a year. Corporations begat profits, investment bankers raise capital, mutual fund companies manage billions, ETFs are brought into existence, ad campaigns inundate the great unwashed, the media trumpets the CEO of the year, regulators worry about Ponzi schemes and financial advisors talk about a great little stock that’s bound to double next week. And all this in aid of 3 per cent a year.

Three per cent, that’s the proportion of Americans being forced to buy insurance under ObamaCare. Critics of the president’s plan make 3 per cent sound like a lot of people. Yet, a 3 per cent annual increase in my portfolio hardly seems worth all the effort involved. 

Between this news and the market’s tumble in the past two days, it’s enough to make a guy want to take his money and stuff it under the mattress.