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When Today’s “High” Prices Become Screaming Good Deals

Posted on October 31, 2024

As buy-and-hold investors, we assume that over time the shares we buy will appreciate. We hope that our current purchases will someday have multiplied many times. This is a logical assumption when you think out far enough. Even a “high” price today could become a screaming good deal in the future.

This is exactly what has happened with many US equity funds in the past few years, due to the outperformance of big US companies. A case in point is Vanguard’s Total US Stock Market Fund (or VTSAX), which I have been buying since the beginning of 2019.* Five years ago, on 10/28/19, VTSAX was at 75.84. Today it closed at 136.82. That is a full 80% higher!

We should not expect that this kind of performance will always happen. Even good funds will likely have period of underperformance.** Yet, if we look far into the future, even a relatively conservative return will be substantial. For example, what if the the US stock market averages just 6% in annual returns (not including dividends, for the sake of this simulation) over the next 20 years? The price of VTSAX would still grow to 438.80*** by the end of October 2044. That represents 321%–over 3x– growth from today’s closing price of 136.82. Put another way, the current price represents a 2/3 discount from what the future price could be in 20 years. And that’s with a conservative return.

Not bad!

If the market averages 7% over the next 20 years, the picture gets even rosier. 7% results in a price of about 529.45. That’s 387% growth, or nearly 4 times the current price. Again, considering today’s price, how does a 75% discount sound to you?

An 8% return yields a price of 637.71. That’s 466% growth, or over 4 1/2 times the current price. That ends up being nearly a 80% discount.

My point is that that no matter today’s prices of shares, they will probably be worth much more many years from now.**** Assuming you have a long enough time horizon to be invested, the odds are good that a buy-and-hold approach will at some point make your current purchases, no matter how high they may be, seem like amazing deals.

*And written about repeatedly on this blog, including most recently here and here.

**For example, Vanguard’s Total International Stock Fund, or VTIAX, has returned a mere 15% in price return in the last five years, without adjusting for dividends (Source: Apple stocks, showing VTIAX was at 28.93 on 10/28/2019, and closed 10/31/24 at 33.16, for a total growth of 14.6%).

***For this blog post, I used a financial calculator app on my phone, compounding today’s VTSAX price by 6- , 7-, or 8% annually over 20 years.

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