The 5-Year-Investment Plan Invested In SPY, Dividend Re-Invested: A Numerical Illustration

Introduction

Today (Jun 30, 2023) I decided to “invest” $1K every month at the end of month in the online savings account. which was suggested in my article, “The 5-Year-Investment-Plan Is A Template: How To Actually Invest It?“, Jun 15, 2023.

My new Goldman Sachs Bank’s online savings account is a proxy of the “5 YIP”. Table 1, 2, 3, 4, and 5 are actual “5 YIP” so, readers can reconcile your proxy accounts with these Tables.

To parallel the approach of “Investment Pancake”, the new “5-Year-Investment Plan” numerical illustration made the dividend reinvested. The annual interest rates are assumed to be anywhere between 4% and 2%. The investment period is 5 years, and would extend 5 years several times after the initial 5 years.

The dividend annual yield is 1.58%, according to the Touch #3: “Top S&P 500 Index Funs”, by Matthew Johnston, updated on Feb 15, 2023 Investopedia (From “The S&P 500 Index: Are We All The Blind?“, Jun 26, 2023)…

The numerical illustration of “5 YIP”, dividend re-invested, with 5 Tables are the next installment duo to space limitation.”

(From “The Elephant (SPY) Did Stand”, Jul 01, 2023)

The Focus

All assumptions were made in the previous article, which was influenced by two articles, written by Investment Pancake. I wanted to make 5 Tables of the “5 YIP’ to cover 30 years, starting at a fictitious age 14 years old, and ending at his age 44.

Making 5 Tables and at the same time writing “The Elephant (SPY) Did Stand”, which became long enough to submit.

This article focuses on a new version of the “5 YIP’ with SPY and dividend reinvested, as readers expect.

Table 1: 12 months in 2023

The investor (14 years old, we call him “Y14”) decided to buy SPY ($443.28 on Jun 30) with $1k each month for 12 months. He can buy 2 shares. At Charles Schwab (which allows to buy a fractional share) he can buy 2.25 shares.

SPY pays dividends every three months, and the last ex-dividend date was Jun 16, 2023. For simplicity, Only, an annual dividend yield (1.58%) enters every year in the 5 Tables.

Interest rates, 4%, 3%, and 2% reflect a 5-years interest trend in my view. The last row, TOTAL, shows Y14’s investment money (12K) and the interest gains, $222.46, $166.38, and $110.61 on 4% (the third column), 3% (the middle column), and 2% (the first column), respectively.

Whenever you deal with any similar tables like Table 1, I give you an advice to verify the accuracy: We have 12 investments with different investment timeframes. An average is about 5.5 months. So, $5,500 times 3% (0.03) is 165 which is close to $166 in Table 1.

Do you see the sensitivity of interests, resulting in the gain differences for just 12 months (actually 5.5 months)? Imagine how much differences there are in 5 years, 10 years, 20 years, or 30 years. You feel clearly the vehement power of compounding in the long haul. Therefore, do your diligent shop around to find a bit higher, for example, 0.001% higher

From now on, the middle column, 3%, acts as a representative for three columns.

NOTE: The Table is designed by Author

Table 2: 5 Investment Packs [IPs} from 2023 to 2027

In 2017 Y14’s Investment Capital (IC) is $66,618.57 which consisted of his invested money 60K and capital gain 6.6K (11%). For five years his IC has been accumulated.

Y14’IC goes into the performance period, without adding his investing money: How long? Your age is the primary factor to decide.

Note that these five Tables are the standard for all age cohorts and the different sizes of their ICs.

Table 3: 15 Years for performance Period From 2027 To 2042

The Table recommends that 15 years are long enough to maximize the performance of investors’ ICs if their ages are younger than 50. It really depends upon other factors such as capital sizes or the personal level of tolerance.

Table 4 and Table 5: 5 years or 10 years more on the Performance (Optional).

In general, nonetheless, any investor who started at least at their ages 35 would consider another “5 YIP” once (Table 4), reaching their age 60, or twice (Table 5) age 65.

The Market Perspective in Five Years

I am bullish this year, considering the resilient U.S. economy, led by the innovative AI sector, and more cooperative global governments’ policy of China, Japan, and other G-20 countries.

In the three-to-five-years spectrum, we will have either a garden-variety recession or the current Great Expansion, starting in 2009, will continue until 2027 or so.

The Charles Schwab reported the market and the economy on Jun 30, 2023:

The last day of the second quarter ended with a punctuation point on what marked the best first half of the year for the Nasdaq Composite (+31.7%) since 1983! Mega-cap stocks took the lead at the open, held it throughout the day, and joined with a host of other stocks to finish the week and the quarter on a winning note.

The tone for today’s winning session was set early when Citigroup started coverage of Apple (AAPL 193.97, +4.38, +2.3%) with a Buy rating and $240 price target. Apple surpassed a $3 trillion market capitalization today. Not to be outdone, Daiwa Securities upgraded NVIDIA (NVDA 423.02, +14.80, +3.6%) to Outperform from Neutral. Those research calls put a bid in the mega-cap stocks that strengthened following the release of the Personal Income and Spending Report for May.

That report played into the optimistic view that the U.S. economy could in fact avoid a recession. It wasn’t because the report was undeniably strong; rather, it was more because it wasn’t decidedly weak. Personal income increased 0.4%, personal spending jumped 0.1%, the PCE Price Index rose 0.1%, and the core-PCE Price Index, which excludes food and energy, advanced 0.3%.”. (The italics are my emphases.)

Concluding Remarks

Leading by SPY (Elephant), the market will move into a Bull Plateau which all Bulls patiently have waited for three years and four months.

For the last two weeks from Jun 20 (Tuesday) to Jun 30 (Friday) we, Bulls, have constructed and paved a Bull highway. Although we are still cautious, expecting suburban and mean Bear attacks, a favorable settlement would be not far away.

The revised numerical illustration of the “5 YIP” with SPY, dividend-reinvested directs all long-term investors, giving them the detailed and core information.

Y14’s Investment Capital will be 83.3K in 1932, (at age 34), $130.1K in 2042, (at age 44), and $203.2K in 2052, (at age 54).

In these 40 years, inflation and interest rates are expected to be 2%. According to the “72 Rule”, the real money will take 36 years (72/2).

As a result, Y14 will have his Real (inflation adjusted) Investment Capital which is roughly $102K (=203.2/2) in the 2023 dollar, which is almost double of his investing money, $60K.

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