I'm going to start by saying that this is not one of those articles that makes outlandish predictions about where the market will go in the next few years .
It is virtually impossible to predict what the market will do over the next two or three years, although over the next five or 10 years the outlook does become more comfortable to predict.
It is not a certainty that the market will be higher in five or 10 years time, but it is likely that the market will be trading at a higher level a decade from now than it is today, assuming the global economy continues to grow.
With this being the case, it is only a matter of time before we see the Dow Jones Industrial Average trading at or above 100,000.
A long time coming
The Dow Jones Industrial Average started life on May 26, 1896. Since then the index has gone through an insurmountable change. The world has transformed, and so have the companies that make up the index.
Every single company that had a position in the index at inception has now been removed. The last was General Electric, which was removed from the Dow Jones Industrial Average in 2018.
Other companies, such as the US Leather Company, were brought to their knees by technological change.
Nevertheless, most businesses are still in existence in one way or another today, having been taken over or broken up during the past 122 years. For example, the American Sugar Company was an original constituent and has since become Domino Foods Inc. The American Cotton Oil Company is now part of American consumer goods giant Unilever, and National Lead Company is now NL Industries. Those are just a handful of original index constituents.
An investor who acquired the whole index in 1896 has done relatively well over the past 122 years. The index has achieved an average annual return of 5.4%. That's even more impressive when you consider that this period included two world wars, multiple recessions and one of the deepest depressions on record (1929).
The world has also changed dramatically since the index was first conceived, and the financial landscape is completely unrecognizable. For a start, index funds didn't exist in 1896. It is widely accepted that John Bogle founded the first index fund, the First Index Investment Trust, on Dec. 31, 1975. Until this point, there was no easy way for an investor to track an index unless they were willing to devote a considerable amount of time and effort to build a tracker fund on their own.
A steady return
Even though it is not a fantastic rate of return, an average annual return of 5.4% is enough to build wealth steadily over the long term. According to most studies on individual investor returns, this rate of return is substantially above the average rate most independent investors make, when factoring in trading costs management fees.
If the index continues to grow at this rate, I calculate it will only take 26 years for it to hit 100,000. That might seem overambitious, but it is only using the average annual return since inception. A more optimistic scenario might be to use the index's average annual returns over the past 10 years, since 2009.
Over this period, the index has averaged an annual return of 6.7%. At this rate, it would take only 21 years for Dow Jones Industrial Average to hit 100,000.
Claiming that it is only a matter of time before the Dow hits 100,000 might seem sensationalist at first. However, the numbers above show it could only be a matter of time before the index hits this level, more than tripling investors' money in three decades with no additional effort required on their part.
Disclosure: The author owns shares in Unilever.
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