I recall the growl of the engine as my father pulled up outside St. Mary’s Church in Billingshurst.
This was on 24th March 2001.
It must have been just before 2pm.
He was at the wheel of his 1965 James Bond-silver Aston Martin.
Window down, smoking a Dunhill, Mum beside him.
I always thought my parents were pretty cool (for parents).
But in those wheels… and in those threads… my old man had turned the cool dial up to 11.
Smart car, smart money
And he looked proud, too.
Because in the back seat was my sister Kate. Dazzling in her wedding dress and veil, about to walk down the aisle with Dad.
I’m one of five. And Kate’s the youngest and the last to marry.
And I don’t know whether it was always his plan… but Dad had spent the past 24 years, on and off, getting the Aston Martin ready for her big day.
Of course, this means nothing to you.
And you’re probably wondering why, within the pages of a financial e-letter, I’m telling you all this.
Well that car made my Dad a 2,733% return on his investment.
That’s almost 30 times his money.
And that’s on top of many years’ pleasure driving it (weekends only)… and delivering his daughter to the church on time… and in style.
That’s pretty cool, isn’t it?
Unusual places to grow your money
Making your money grow isn’t about sticking it in the building society. We all know that. (Especially not with interest rates near zero!)
But it’s not just about the stock market either.
Or government bonds.
Or even speculating in the cryptocurrency market.
OK, so stocks (equities) are the go-to long-term investment. Always have been.
And maybe cryptos will knock them off their perch in that regard.
Maybe as my nine-year-old son reaches retirement in 2074, he’ll be thanking crypto markets rather than stock markets for growing his wealth…
[Did you see our expert’s top crypto pick for 2018? If you’re new to this market, this could be a great way to start! Full details revealed here.]
But there are other places you can park your money.
Leave it alone for a decade or so and you could well find it’s gone up a few times over.
If you’re a regular Monkey Darts reader, you may know I’ve been researching this lately.
I want to know how different asset classes stack up against each other over the long term.
It’s a pretty drawn out process.
I’ve not found one central resource that compares all these things. (That would be too easy, right?!)
It’s a case of digging around, talking to people, getting the data together and examining how these assets perform.
And when I’m done, I’ll lay it out in full for you.
But I can’t resist sharing some of the interesting things I’ve discovered along the way.
Like how vintage sports cars have outperformed the FTSE.
Hence the story about my Dad and his Aston…
It’s not all about stocks
I’m going to assume a couple of things here…
I think you keep an eye on the financial markets like I do. To some degree.
I’m sure you know stock markets have been on an amazing run for the past nine years.
Let’s put some numbers on it.
To do that, let’s go back to the financial crisis of 2007-2008. The sub-prime mortgage bubble, the collapse of Lehman Brothers and so on.
After all that chaos, global markets reached a low point in March 2009.
Since then, it’s been pretty much up.
Oh sure, the markets have zigged and zagged as they do.
But despite the dips, the trend has been up. Massively.
This bull market’s pushed the FTSE 100 up 122%, from 3,512 to a high in January of 7,800.
The Dow Jones has done even better, from 6,443 in March 2009, to 26,616. That’s a 313% gain.
But how about the cars?
How stocks compare to other markets
I already told you the returns my Dad made on his Aston Martin.
But that was over 33 years. I’m not allowing for inflation. (A 1977 pound had little relation to a 2010 pound.)
And he had to spend some money on it along the way.
Not huge amounts. Just the parts, as he did all the fixing up himself.
Oh, and the spray job to turn it from a rather faded brown into the shimmering 007 silver.
I still think he made a great turn on the deal.
But let’s see how investing in cars compared during the stock bull market from March 2009…
The returns you could have made in the classic car market over the same period weren’t far off that.
Double the FTSE’s performance
I’ve been dipping into data supplied by the guys atwww.artmarketresearch.com.
They compile indexes to track price movements in the art and related markets worldwide. They’ve got data going back to 1985.
During the latest stock market rally, their ‘classic’ Aston Martin index increased by 247%. That’s from March 2009 to December 2017.
So not quite as good as the Dow in the period. But more than twice the returns of the FTSE.
(Out of interest for Italian car fans, the classic Ferrari index thrashed Aston Martin, gaining 445%.)
But there are some other important considerations.
Those performance figures we’ve looked at are purely the percentage rise in the nominal values of the indexes.
But to compare the stock market with classic cars on that basis alone is a little unfair on stocks.
A shot in the arm for stocks
Because with an investment in stocks you get paid a dividend, too.
And if you’re smart you reinvest those dividends as they come along.
When you do that, something amazing happens over the long term…
(You could say you get a dividend of sorts with your car – you get to enjoy driving it. But we’re here to talk about money, right?)
Remember I said that the Dow had delivered returns of 313% since the March 2009 bottom to the recent peak in January 2018?
Well that was the nominal return. The difference between the index value at the 2009 low and at the 2018 high.
What happens when you add in the dividends paid out on stocks in the index?
Well I can give you an approximate figure using this Dow Jones returns calculator.
It won’t let me plug in the exact dates. Instead, it uses average monthly closing prices for the Dow.
But it’s good enough to give us a sense of what we’re trying to do.
The power of compounding
And the numbers it spits out (based on average monthly closes) are as follows…
The basic Dow Jones return for the period is 256.6%.
But with dividends reinvested, the return is 346.3%.
That’s a considerable difference, isn’t it? If you had £10,000 invested, the reinvested dividends increase the profit from £25,660 to £34,633.
That’s the magic of compounding at work there. Earning dividends on your dividends and compounding your wealth.
The Telegraph explains it:
“When purchasing a share, investors can choose how they will receive any future dividends: either receive the cash or purchase more company shares. When opting for reinvestment, the investor triggers the start of a process Albert Einstein called “the eighth wonder of the world”: the miracle effect of compounding interest.“Compound interest, put simply, is interest on interest and it can help an investment grow at a faster rate. And the value of this compounding increases over time.”
As for UK stocks, it must be a similar story there. But I’ve not yet found a source for the effect of reinvested dividends on the FTSE.
The point is, classic cars stand up well against stocks on the face of it.
But when you add in the reinvested dividends, stocks shoot ahead.
We’re not done yet, though. There are other places for your money that have great form when it comes to long-term growth.
What about property? Or commodities? And where do cryptocurrencies fit in to all this? Let’s figure it out in Monkey Darts…
I’ll be back next Friday – have a great weekend.