# The Dow Jones Industrial Average Is Considered A -Weighted Average. DJIA – Historical Performance of the Dow Jones Industrial Average

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## DJIA – Historical Performance of the Dow Jones Industrial Average

With the recent volatility causing instability in people’s portfolios and peace of mind, I thought I’d take a look at how the DJIA (Dow Jones Industrial Average) has performed over the past 30 years. plus since 1975. During this period, the DJIA has gone from a high return of 38% in 1975 to a loss (-17%) in 1977. Since from 1975 to 2006, there were 23 good years and 9 bad years. If you take a simple average of the annual returns over that period, you’ll arrive at an average of 10.83%.

Does this mean you will get a 10.83% annual return investing in the DJIA? NO Some years you will make that much or more while others you will make less money, even if you lose money. Your average return is not as simple as taking an average. Let me give you an example: Two people invest their money in different financial instruments for 5 years. The first investor earns an annual interest rate of 8%, while the second investor earns 15%, (-3%), 18%, (-12%), and 22% over five years. Both of these investors earned a simple average of 8% over 5 years, but did they earn the same amount?

Investor 1:

Initial investment \$10,000.00

After the first year 8% Earn \$10,800.00

After Year Two 8% Earn \$11,664.00

After Year Three 8% Earn \$12,597.12

After the fourth year 8% Earn \$13,604.89

After the fifth year 8% earns \$14,693.28

Investor 2:

Initial investment \$10,000.00

After the first year 15% Earn \$11,500.00

After Second Year (-3%) Loss \$11,155.00

After Third Year 18% Earn \$13,162.90

After the fourth year (-12%) loss \$11,583.35

After the fifth year 22% earns \$14,131.69

As you can see, one user earned almost \$562.00 even if they calculated on a simple yearly average. However, in real return, the first time investor earned more than 5.5% more than the five-year investment. I use this example to show the value of reducing negative feedback. The best way to do this is to diversify, not only in different stocks, but in different asset classes. Finally, remember that historical data doesn’t mean the future will be the same, but it can be used as a starting point for predicting reasonable returns.

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