The Million Dollar Portfolio again at record highs

The last time we wrote about “The Million Dollar Portfolio” was after the two recent bear markets.

And the previous one was to show how despite the bear market of 2022, the Del Millon Portfolio continued with its plan.

The Million Dollar Portfolio at an all-time high

Long-term investing and patience pay off. The Million Dollar Portfolio has stuck to its plan and undeterred has continued to invest with automated recurring contributions.

As of 5/7/2024, as shown in the chart to the left, the portfolio has achieved a return of 84.8%, clearly above its previous high of 79.5% at the beginning of 2022.

The peak in value occurred a few months ago, at the end of 2023. Currently, the portfolio in value is well above that peak, as can be seen in the chart above right, and a considerable positive gap has opened up again with respect to cumulative capital contributions (difference between the solid and dotted line).

As a result, the profitability achieved is already very close to the expected one:

  • in terms of cumulative return, it reached 84.8% compared to 92.7% (-8%)
  • in terms of annualized return, 5.7% compared to 6.1% (-0.4%).

As we can see, if we allow time to elapse, the actual return (green line) tends to “meander” around the expected return (blue line), sometimes upwards (in bull market situations) or downwards (in bear market situations).

CTA Fondos Indexados (ENG)

In the long term, capital gains can represent more than 50% of the final value.

We have already talked on other occasions about the multiplier effect of compound interest, which as we know derives from the effect of obtaining more profitability on the accumulated profitability.

The multiplier effect of compound interest, causes in the long run a great process of accumulation of the value of an investment.

“The nature of compound interest is that it behaves like a sticky snowball. The trick is to have a very long hill.” Warren Buffett tells us.

One consequence of the accumulation effect is that there comes a ‘magic’ moment when the return generated by the capital gains of a portfolio exceeds the return on the investor’s contributions.

As we can see in the graph above and below, 31% of the value of The Million Dollar Portfolio currently comes from the capital gains generated.

300 per month (adjusted annually at an average inflation rate of 3%), this ‘magic’ moment would occur in 9 more years, when capital gains would reach 51% of the portfolio’s value. After 20 years, the weight of capital gains would be 65%, and if the portfolio remains invested for up to 30 years, it would reach 75%.

In other words, by investing in the very long term, 75% of future profits would come from the money generated, not from the capital contributed by the investor. This is undoubtedly an example of the accumulation power of long-term investment and the effect of compound interest.

CTA Planes de Pensiones (ENG)

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