Quote:
Originally Posted by Amnorix
March 20.
1602. The Dutch East India Company is established. It was the first true corporation in the world -- the first to issue stock, and the first to be a multinational corporation. It was also arguably the world's first megacorporation, establishing colonies, coining money and entering into treaties. It was also immensely profitable for its owners, and paid an 18% dividend for nearly 200 years.
|
If we assume the dividend was paid for 190 years, a person who invested a penny (one cent) in the stock in 1602 and reinvested dividends would have had stock worth $454,550,000,000 by 1792. Apparently my ancestors spent their penny on ale.
But I know what you're thinking. Why would they have continued to reinvest year after year? It's not a good idea to put all your eggs in one basket. Plus, who would be worth $400 billion and not use some of that money for spending?
So let's say that the person started taking half of the gains each year for living expenses, doing so one they were able to take a dividend of one penny. And then once their principal reached one dollar, let's assume that they put half of the money into a conservative money market paying a strong 5 percent, and rebalanced each year.
If they did that, it'd be a huge mistake. Instead of $454 billion, the descendent in 1792 would have had only $88,608 in principal. They would've been living pretty good, though, getting an income of $3,119 in 1792.
Now, let's assume that a nice living was $500 per year and they topped out their benefits at $1,000 per year, increasing it thereafter at 5 percent per year to keep a comfortable standard of living. If they only took out that amount, they'd have a principal of $148,231 in 1792.
Bottom line is, diversification doesn't pay off when you're pulling money out of an 18 percent annual investment.