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Subject: Re: Strategy comparison S&P500 vs. IUL [rev 1]  Date: 4/7/2013 6:48 PM  
Author: Rayvt  Number: 71782 of 85256  
Time to do a backofenvelope sanity check on my spreadsheet. Those numbers I recently posted seem too good to be true. S&P500 spreadsheet growth calculations sanity check S&P500 actual values. Open 1/3/1950: 16.66 Close 12/31/2012: 1426.19 66 years. 16.66 growing at 7.32% compounded annually for 66 years = 1427.44 Therefore the approximate CAGR was 7.32% $10,000 growing at 7.32% compounded annually for 66 years = $856,805 My backtest spreadsheet says: B&H of S&P500 without dividends, no expenses Initial value $10,000, $0/mo additions Final value on 1/1/2013 = $836,475 The values are very close, only 2.3% difference. Therefore, the spreadsheet calculations & formulas are correct. We know that the historical average dividend yield of the S&P500 is around 3%, sometimes higher, sometimes lower. Let's make a guess. Let's guess that the average yield from 1950 to 2013 was 3.5%. Total average return is then 7.32% + 3.5% = 10.82%. The number often bandied about is that the longterm average total return of the S&P500 is about 10.5% per year, so 10.82% is a reasonable estimate. $10,000 growing at 10.82% compounded annually for 66 years = $6,470,580 My backtest spreadsheet says: B&H of S&P500 with dividends, Initial value $10,000, $0/mo additions, 0.09% E/R Final value on 1/1/2013 = $6,747,890 The values are close, only 4% difference. Therefore, the spreadsheet calculations & formulas are correct. The spreadsheet passes the smell test. 

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