Let’s not consider the slow earnings growth for now. Let’s take it a step further and consider for a moment “no” earnings growth for the next five years in the S&P 500 index. This year in 2005, the expected earnings estimate for S&P 500 is $75.02 on as reported basis. Now assume that for next 5 years, from 2006 to 2010, S&P 500 earns $75 each year. Even in this static situation the total earnings for the next 5 years will be $375.

So, “no” growth gives you $375 for next 5 years.

The current price we are paying for S&P 500 is about $1200 for $75 earnings each year. The inverse of the P/E ratio, the E/P of S&P 500 is 6.25%.

**In a “no” growth environment the index investment can be considered as a bond with 6.25% yield**. The current 10-year bond yield is about 4% and 30-year bond yields about 4.30% for comparison purposes.

All disclaimers apply.

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