97-22315 RESO
RESOLUTION NO.
97-22315
A RESOLUTION OF THE MAYOR AND CITY
COMMISSION OF THE CITY OF MIAMI BEACH,
FLORIDA AMENDING THE CITY'S POLICY
REGARDING THE INVESTMENT OF CITY FUNDS.
Whereas, effective October 1, 1995, all local governmental entities in the Stat,~ c f
Florida were required to adopt an investment policy as required by Chapter 280 of the Flo~id l
Statutes; and
Whereas, the Mayor and City Commission adopted Resolution No. 95-2l72{ 0 1
September 27, 1995 which adopted said policy for the City of Miami Beach; and
Whereas, the Mayor and City Commission have determined that the numbe: c f
authorized investment options need to be increased and policies need to be adopted concerning th.~
percentage of the City's funds which may be invested in said additional categories.
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND CITY COMMISSION OJI1'
THE CITY OF MIAMI BEACH, FLORIDA, that the amended City of Miami Beach Investmert
Policy and Procedure, attached hereto and incorporated herein as exhibit "A", be and the same i;
hereby adopted.
Passed and adopted this 5th day of
OYED AS TO
F & LANGUAGE
& FOR EXECUTION
Attest:
_KoluA~ f~
City Clerk
F\FINA \SDIR\WPWIN60\CITYCOMMlINVPOLRES
1f~ Z-1).-}/~7
Clfy Dot.'
CITY OF
MIAMI
BEACH
CITY HALL 1700 CONVENTION CENTER DRIVE MIAMI BEACH FLORIDA 33139
OFFICE OF THE CITY MANAGER TELEPHONE: (3('5) i73-7010
FAX: (3('tS) i73-7782
COMMISSION MEMORANDUM NO. B3-ql f)~
March 5, 11 )9"
To:
Mayor Seymour Gelber and
Members of the City Commission
From:
Jose Garcia-Pedrosa 'nJ
City Manager !'
Subject:
Resolution Amending Resolution 95-21726, the City of Miami Beach Statement
of Investment Policy and Procedures
Administrative Recommendation
The Administration recommends that the Mayor and City Commission adopt this resolution.
Background
Florida Statutes Chapter 280 requires that all local governmental entities within the State of Florid L
adopt an investment policy governing the authorized investment and the procedures for sue 1
investments. This Statute was adopted in the 1995 Legislative Session and became effectivt 0 1
October 1, 1995. On September 27, 1995 the City Commission adopted resolution 95-21726 whic 1
formalized these policies and procedures.
In the proposed Fiscal 1997 Budget, the Finance Department is proposing a new position ofTrea~,ur]
Manager to oversee the investment of City funds. As the City will then have a full-time posLio 1
devoted to the managing these funds, the Administration believes that an amendment to th.:
authorized investments is necessary to provide the maximum flexibility to increase the utility of th .:
cash assets.
This issue went to the Capital Improvements/Finance Committee in July, 1996, who requested th~ t
an Ad-Hoc Committee be formed to review this issue. The Ad-Hoc Committee reVlewec,
commented and modified the proposal from the Administration.
Agenda Item ~ l "D
Date 3-':1-'1"1
The Ad-Hoc Committee reduced the proposed investment options for cash management purpose:;
and suggested an oversight committee be formed to carry forward the community oversight over th .~
management ofthe City's cash assets. With the guidelines, as modified, the Ad-Hoc Committee hel:>
recommended the approval of these investment alternatives and procedures.
This amendment will authorize additional categories of authorized investments and place guidelims
on the percentage of the City's funds which may be invested in them. These authorized investmenl S
will include only those traditional short term debt instruments.
Included in this policy statement is the creation of an Investment Committee to oversee and s( t
direction for the City's investments. The Committee will include the Chairperson of the Capitd
Improvements/Finance Committee, the Finance Director, the City Manager or his designee, th~
City's Financial Advisor and five members from the local banking/investment community. Thil:;
Committee will meet at least quarterly and set direction for the Treasury Manager.
Conclusion
With the employment of a person whose duties specifically include the management of the cas 1
management investments for the City, the expansion of the authorized investments and the reLl.te i
policies governing those investments should be adopted.
fI/
JGP/RJN/cp
F.\FINA I$DIRIWPWlN60ICITYCOMMIINVPOL.RES
,w.;..;....
CITY OF MIAMI BEACH
INVESTMENT POLICY
AND PROCEDURE
~.
CITY OF MIAMI BEACH
INVESTMENT POLICY AND PROCEDURE
~.;.""
CITY OF MIAMI BEACH
INVESTMENT POLICY AND PROCEDURE
TABLE OF CONTENTS
SUBJECT PAGE
Background..................................................................................................................... 1
General Overview........................................................................................................... 1
Investment Objectives............... ... ......... ..... ....... ... ............ ... .............. .... ............ ......... .... 2
Investment Ethics......... ... .... ...... ...... .... ........ ....... .... ...... .... .... ... ..... ... ............... ....... ......... 3
Investment Process... ...... ........... ............ .... ..... .... ........ ....... .... ... ... ....... ............. ........... ...... 3
Authorized Investments. ....... .... .......... ... .... ........... ... .... ... ... ....... .......... ........ ......... ..... ...... 4
Prohibited Investments..... ... ....... ........ .... .... ........ ... ....... ... ....... ........ ... ....... ......... .... .......... 9
Maturity & Liquidity Requirements............. ..... ............ ...... ........................................... 10
Portfolio Composition.................................................................................................... 10
Custodial Account.... ............... ..................... ......... ....... ........... ... ..... ................. ............... 11
Master Repurchase Agreement....... ....... ..... .......... ....... ................... .... ........... ...... ..... ...... 11
Investment Transaction Authority................... ..... .......... .... ...... ........ .......... .................... 11
Internal Controls............................................................................................................. 12
Investment Committee.... ....... ......... ...... ..... ... ...... .... ...... .... ... .......... ........... ...... ........ ....... 14
Investment Reporting......... ............. .... ......... ................................ ..... ................ ............. 14
Recordkeeping and Performance Measurement............................................................. 15
Pension Investments. ........... ............. ............... .................. ....... ......... .... ...... ..... .............. 16
Bond Funds........... ............................. .............. ... ........ .......... ...... ..................... ..... .... ...... 16
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I. Background
The Florida Legislature passed CS/SB 2090 (CS/HB 1795) on May 4, 1995. Among oth er
provisions of this legislation each local government entity is required to create, adopt and
maintain comprehensive investment policies, incorporating fourteen required elements. Tile
investment policy is required to be adopted on or before October I, 1995.
The City has operated under investment guidelines adopted by Resolution 95-21726 on
September 27, 1995. Due to the amendment of City Code Section 18A-I, these policies have
been amended accordingly.
II. General Overview
The City of Miami Beach has established policies relating to the investment of excess funes.
Excess funds are defined as funds not required to meet short term expenditures of the City.
Excess funds are placed in two general categories of investments. The first category is "ca:;h
management investments". Cash management investments are defined as investments
whose terms are less than five years. Those funds placed in cash management investments
include capital projects funds, debt service funds and various deposits. The second categolY
is "long term city investments". Long term city investments are investments whose temlS
are five or more years. The policy governing long term city investments is set forth belo w
after the description of cash management investment policy.
III.
Cash Management Investment Policy
'.
Short term expenditures are defmed as all daily operating expenditures excluding payroll ard
debt service. For short term expenditures, the City maintains an overnight funds sweep
program collateralized by Full Faith and credit instruments of the U.S. Government and i:s
Agencies with the City designated as collateral beneficiary. The City complies with Stale
of Florida "Public Deposits Law" Chapter 280 Florida Statutes. Chapter 280 insures tte
City against investment principal loss on certificates of deposit and demand deposits in
excess of$IOO,OOO per institution. FDIC insurance covers demand deposits up to $100,000
per institution. The City will utilize only fmancial institutions qualified under Chapter 280,
a listing of which is received by the City and reviewed on a quarterly basis. The City also
complies with Chapter 280 by filing all required reports annually with the State.
A. Investment Objectives
The City of Miami Beach's investment objectives are set forth below in order
of importance:
oiI'";..;.....
1. Safety of capital
2. Return on capital
3. Liquidity of capital
Investment returns are important and can make a significant contribution ':0
the City's operations and capital projects. Therefore, every effort is made 10
select the most advantageous investment vehicle and term of investment 10
maximize earnings. However, safety and liquidity, in that order, take
precedence over the return. In this regard, the City has delineated, through
ordinance, certain permissible types of investments, with a view to meeting
the criteria set out above.
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B. Investment Ethics
The City of Miami Beach selects all investments by means of a bidding
process. In no case does the City invest funds or place idle funds in fmancial
institutions as compensating or courtesy balances. The standard of prudenl:e
to be applied by the investment officer shall be the "prudent person" rule,
which states: "Investments shall be made with judgment and care, und~r
circumstances then prevailing, which persons of prudence, discretion and
intelligence exercise in the management of their own affairs, not fi)r
speculation, but for investment, considering the probable safety of their
capital as well as the probable income derived." The "prudent person" rule
shall be applied in the context of managing the overall portfolio.
The investment officer and staff, acting in accordance with the written
procedures and exercising due diligence, shall not be held personally
responsible for a specific security's credit risk or market price change;,
provided that these deviations are reported immediately and that appropria1 e
action is taken to control adverse developments.
c.
Investment Process
The formal bidding process for investment instruments consists of the
following procedures:
1. Maintain a bid list of approximately five major financicl
institutions qualified under Chapter 280 and two major
brokerage firms. This bid list is adjusted periodically tl)
3
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delete bidders who are non-responsive or non-competitive
over a period of time, replacing such institution(s) with oth~r
qualified institutions which have expressed an interest to b I:d
on City funds. Qualified institutions are defined as financill
institutions governed by Chapter 280 of the Florida Statues
with a branch location in Dade County, Florida.
Brokerage houses must maintain an office in Dade Coun~r,
Florida and are selected based on the amount of equity in tie
firm, number of years the firm has been in operation and
reputation.
2. Place telephone calls requesting a bid from each institution on
the bid list either on the day of the transaction or the
afternoon immediately preceding the transaction date.
3. Receive and note all bids on a standard form designed for this
purpose and retain on file for each transaction
4. Select the highest winning bid
"
5. Transfer funds in exchange for evidentiary receipt from
winning bidder.
This process should prevent influence being experienced by either Ci~r
personnel or the financial institution in the selection of the institution chosen
for the purchase of City investments.
D. Authorized Investments
The City has established a list of authorized types of investments. Thf
4
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authorized cash management investments are described in Chapter 18A of the
City Code and are further limited as follows:
1. Time Deposits
Duration N/A
Maximum % of Portfolio 100%
Maximum % of Combined Asset Group 100%'
2. Certificates of Deposit
Duration 1-3 yrs
Maximum % of Portfolio 100%
Maximum % of Combined Asset Group 100%
3. U.S. Treasury Bills
Duration N/A
Maximum % of Portfolio 100%
Maximum % of Combined Asset Group 100%
4. U.S. Treasury Notes
'. Duration 0- 7 yrs
Maximum % of Portfolio 100%
Maximum % of Combined Asset Group 100%
5. U.S. Government Agency Securities.
Duration 0- 7 yrs
Maximum % of Portfolio 50%
Maximum % of Combined Asset Group 50%
6. Obligations issued by any state or territory of the United
States, which are fully insured or rated in one of the two
highest rating categories by both Moody's Investors Servic(~,
Inc. and Standard and Poor's Corporation or their successor~i.
5
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Duration
Maximum % of Portfolio
Maximum % of Combined Asset Group
7.
Fixed Term Repurchase Agreements
Duration
Maximum % of Portfolio
Maximum % of Combined Asset Group
7-10 yrs
50%
50%
0-3 yrs
20%
100%
N/A
100%
N/A
N/A
20%
30%
Commercial Paper with a rating of A-lor P-l only, rated b;'
Moody's or Standard &_Poors
Duration N/ A
Maximum % of Portfolio 20%
Maximum % of Combined Asset Group 30%
6
11. Corporate notes, corporate bonds, medium term notes,
Yankee notes, and Yankee bonds with terms of one year or
less rated by 2 of 3 designated rating agencies in one of the
two highest rating categories
Maturity 0-2 yrs.
Maximum % of Portfolio 20%
Maximum % of Combined Asset Group 30%
8.
Overnight Repurchase Agreements
Duration
Maximum % of Portfolio
Maximum % of Combined Asset Group
9.
Bankers Acceptances
Duration
Maximum % of Portfolio
Maximum % of Combined Asset Group
10.
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12. Corporate notes, corporate bonds, medium term notes,
Yankee notes, and Yankee bonds, with terms of in excess:Jf
one with a maximum of 5.0 years rated by 2 of 3 designated
rating agencies in one of the two highest rating categories
Maximum Maturity 3-7 yrs
Maximum % of Portfolio 20%
Maximum % of Combined Asset Group 30 %
13. Money market mutual/trust funds which substantially
conform with this policy as follows:
Duration N/ A
Maximum % of Portfolio 100%
Maximum % of Combined Asset Group 100%
a. State of Florida Local Government Surplus
Funds Trust Fund
b.
Mutual/trust funds sponsored by the Florida
League of Cities
'.
c. Private money market mutual funds backed
entirely by "Full Faith and Credit" U.S.
Government Securities not to exceed 25 % .
14. Fixed income mutual funds sponsored by the Florida Leaglle
of Cities which substantially conform with this policy is
follows:
Duration N/A
Maximum % of Portfolio 25%
Maximum % of Combined Asset Group 25 %
7
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15. Mortgage-backed securities collateralized by fIrst mortgages
(or deeds of trust) and asset-backed securities collateraliz:~d
by consumer or business receivables with a maximLm
duration of 3.0 years at time of purchase and structured as
either collateralized mortgage obligations or unstructured
pass-through securities and rated by 2 of 3 designated rating
agencies as follows:
Maturity 3-5 yrs
Maximum % of Portfolio 15%
Maximum % of Combined Asset Group 50%
a.
Moody's
Standard & Poor's
Fitch
AA3 or higher
AA- or higher
AA- or higher
b.
c.
16.
Externally managed funds requiring specifIc approval by
Commission with investment limited to City policy and
rating criteria
Duration
Maximum % of Portfolio
3-7 yrs
20%
'.
Maximum % of Combined Asset Group 20%
17. Interest rate Swap agreements between the City and a
counter party to pay/receive a fIxed interest rate payment in
exchange for a variable rate payment over a specifIed term
with the requirement that all "Swap" agreements be
approved by City Commission prior to execution.
Duration N/ A
Maximum % of Portfolio 10%
Maximum % of Combined Asset Group 20%
All repurchase agreements are fully collateralized and the collateral is hdc
8
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in the City's name by a third party custodian.
Derivatives (defined as a financial instrument the value of which depends on,
or is derived from, the value of one or more underlying assets or index of
asset values) shall be utilized only if specifically authorized as part of 1he
investment plan and the Finance Director or his designee has sufficient
understanding/expertise to invest in derivatives. All proposed derivative
investments (including "SWAPS") will be analyzed by the City's Financial
Advisor and will be presented to the Capital Improvements/Finance
Committee and the City Commission for approval. Repurchase Agreements
(an agreement between an investor and a security dealer whereby dealel
agrees to buy back the security at a specified price in the future) will be
limited to transactions in which the proceeds will be used to provlde
liquidity. Any investment which is not issued in "Book Entry Only" foml i~
physically held by the City in a secure vaulted area and surrendered 0 [11)
when invested funds and earnings are received by the City at maturity.
E. Prohibited Investments
Funds to be invested in cash management investments may not be invene(..
in the following:
Common Stock
Preferred Stock
Convertible Bonds
Venture Capital
Options and Futures
Warrants
Commodities
Short Selling
9
Private Placements
Unregistered or Restricted Stock
Margin Trading
Limited Partnerships
Oil and Gas Wells
10 or PO strips or Inverse floate r
mortgage backed securities
Foreign Exchange
Any Inverse Floating Rate Securije:
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Real Estate
F. Maturity and Liquidity Requirements
The City selects investments whose tenns compliment the need to make the
major expenditures set forth below.
1. Biweekly Payrolls
2. Periodic Debt Service Payments
3. Capital Project Needs
'.
For each expenditure event, investments are selected whose maturities occ If
at a date close to the date that funds will be needed. Investments also are
selected based on the highest yield for the particular type of investment. [n
the case of capital projects, in which the exact date that expenditures wlll
need to be made is unknown, the City selects several investments with
varying maturities so that monies are available each month to cover all capi1 al
expenditures. Any unused capital investment funds are then placed in
investments of one year or more to maximize return potential.
As mentioned earlier, the City maintains an overnight investment program of
approximately $7,000,000, which provides funds needed to cover daily operating
expenses, excluding items #'s 1- 3 above. Interest yields on these investments are
competitive though somewhat lower than longer tenn instruments.
G. Portfolio Composition
Diversity of investment types is highly desirable. Such diversity is necessary
10
.or:.;,....
in cases where securities are traded frequently and not held to maturity and
where volatile securities are traded.
H. Custodial Account
All City investments, except for swap agreements, must be held in ,U1
independent custodial account within the trust department of a maj::>r
financial institution with a branch located in Dade County, Florida. The
custodian will not be utilized to buy or sell investments for the City. All City
investments must be registered in the City's name in book entry form
evidenced by transaction tickets maintained by the custodian with a copy
provided to the City. Physical possession of securities by the City should be
avoided. The investment held by the custodian must be reconciled monthly
to the City's general ledger. The City will carry investments at cost but w.ll
maintain a record of portfolio market value each month.
I. Master Repurchase Agreement
..
A "Master Repurchase Agreement" has been developed, reviewed and
accepted by the City and is part of the contract established with the City's
main depository bank. This agreement is a standard Public Securitks
Association ("PSA") form agreement offering all recommended protection
to the City. This agreement is scheduled to be in effect for the duration of the
contract with the City's main depository.
J. Investment Transaction Authority
The Finance Director has designated the Treasury Manager as the individull
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responsible for managing the City's investments. The Treasury Manager
discusses investments with upcoming maturities with the Assistant Finance
Director and the Finance Director if there is a question as to new maturity
target dates or type of investment vehicle to be used. Based on the:;e
discussions, the Treasury Manager executes the transaction and completl~s
an "Investment Transaction Report" for each investment transaction. The
Assistant Finance Director and the Finance Director then review and approve
the Investment Transaction Report. The fully executed Investme:lt
Transaction Report contains all information pertinent to the investment and
contains the approval signatures of the Finance Director, Assistant Finance
Director and Treasury Manager. Funds related to each investment are
transferred according to authorized funds transfer procedures and limi:s
established under the provisions of the City's contract with its main
depository bank..
K.
Internal Controls
The City has established a number of internal controls to prevent loss cf
funds by fraud, employee error, misrepresentation by third parties, cr
imprudent actions by employees of the City. The internal controls are as
follows:
1. Investment transactions authority is limited to specifi:
persons within the Finance Department.
2. Wire transfer of funds authority is restricted to specifk
individuals with specific dollar limits within the Financl~
Department. All non-repeat type wire transfers requin~
confirmation authorization by a second individual specified
12
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in wire authority documents executed with the City's mlin
depository.
3. All investment transactions require the approval of:he
Finance Director and Assistant Finance Director on:he
Investment Transactions Report for each investment.
4. A monthly report titled "Investments by Banks/Funds" is
prepared by the Assistant Finance Director and distributed to
the Finance Director early in the subsequent month for
review. In addition, a Financial Analyst in the Finar~ce
Department receives a copy oftrus report and reconciles thl~se
investments with the City's general ledger on a monthly bmis.
5. An Account Clerk II in the Finance Department reconciles 1he
City's general depository account on a monthly basis by
comparing the City's general ledger with the applicable bank
account statements. The reconciliation of the gene~al
depository account would reveal any difference in investment
transaction recording and the actual movement of funds.
6. Each month, the Assistant Finance Director reconciles
investments reflected in the custodial statements with the
City's records.
7. Each year both internal auditors and the City's exterral
auditors review existing internal controls as well as
investment transactions by examining data on a random bas [s.
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L. Investment Committee
An investment committee will be established to exerCIse oversight
responsibility concerning types of investments and maturity of investments.
The Committee will consist of the following individuals:
Finance Director or his designee
Chairman of the Capital Improvements/Finance Committee
City Manager or his designee
City's Financial Advisor
Five members of the local banking/investment community
The committee will meet at least quarterly to discuss investment objectives,
terms and choice of investment alternatives for the upcoming quarter. The
Committee will assist in establishing timelines for expenditure of capital
project funds and for investment of any extraordinary receipt of funds and
will review portfolio performance for the previous quarter and compositic1n
of the investment portfolio.
Investment Reporting
As discussed previously, the Finance Department maintains several types of
information and reports on investments. The records relating to investments
are as follows:
1. Investment Transaction Report - A recording/approval fonn
for each investment transaction, regarding both active an d
14
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matured investments. This form also indicates all bids
obtained where applicable.
2. Investment bid sheet, where applicable, for each investment
3. Investment Log - a document listing, in chronologie al
maturity order, pertinent information on each inves~ment
4. Investments by Banks/Funds report generated monthly and
reconciled with the City's general ledger
5. Annual summary of average investment returns which is
subjected to external audit for reasonableness of average
stated yield for the fiscal year.
N. Recordkeeping and Performance Measurement
"
Comprehensive records of each investment transaction are maintained in the
Finance Department. These records include bid sheets where applicabl~,
investment transaction reports, investment bank advices, the annUlI
investment log, and a quarterly compilation of total returns for the precedirg
fiscal quarter by City fund type (e.g., General Fund, Capital Project"
Enterprise, Internal Service). Annually, the City's external auditors revk.v
the calculation of investment yields prepared by the Finance Department for
comparison to indices and comparative data maintained by the external
auditors. They then determine the reasonableness of the average yield
calculated by the Finance Department. If no problem is indicated, the
Finance Department then compares its average annual yield to yields ef
surrounding local governments when such information becomes available.
15
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While yield is not the primary concern of the City's investment manager, it
should be noted that the City has consistently enjoyed an average yield
competitive with other major local governmental entities while assuming
lower risk.
v. Pension Investments
The City does not manage the cash or investments of the City's four pension systems. Each
pension system has elected or appointed members to its pension Board of Trustees who
exercise oversight over money managers engaged to manage pension fund investments in
accordance with policies and guidelines established by each pension system. The Board:;,
therefore, have oversight authority over investments for pension systems and the City doe s
not actively participate in this process.
VI.
Bond Funds
..
Notwithstanding anything to the contrary contained in City Code Chapter 18A or thes;:
investment guidelines, the provisions pertaining to investment of monies under al I
ordinances, resolutions, trust indentures and agreements adopted or entered into by the Ci~,'
in connection with bonds issued by the City or other debt incurred by the City will contre I
and supersede the provisions herein contained with respect to the investment of such monieL
F:\FINAISDIRIWPWIN60IWPDOCSIlNVPOL&P. WPD
16
". .i;... . DOW DIARY .
..... ..
1\ WEEI(:LY LOOK AT THE AVERAGE IN ITS lOOTH YEAR
Hotv to ltlake $61 Nlillion, Slmvly
Why is the Dow Jones Industrial Aver-
ag-e probably the most widely watched fi-
nancial measure in the
world': One reason is
that U.S. stocks have
been a solid investment.
The accompanying
bar chart shows the re-
turns provided over the years by stocks
and other investment assets, and com-
pares them with
the rate of infla-
tion. Of course, Average annual rates of return, 1926-1996 or
stock-market re- closest available period
turns fluctuate vi-
olently from year Small stocks
to year and even
from decade to
decade. But mea-
sured over long
spans, the return
from stocks has
hovered near 10%.
The Dow Jones
Industrial Average
has provided a to-
tal return of 9.17% a year, including rein-
vested dividends, since March :31, 1900, ac-
cording to Ned Davis Research Inc., in
Nokomis, Fla. The average, celebrating
its 100th birthday this year, began four
years earlier, but good dividend informa-
tion is unavailable for the pre-1900 period.
,\. person who invested $100 in the
Dow industrials in [900 now would have
man: than Sol million, That is testimo-
Real estate
Oow Jones
Industrials
Bonds _ 5.2%
Treasury billS" 3.7%
Inllation .. 3.1%
ViSit the DJIA Centennial site on the
I Inte.'net:it Mtp/ldjia IOO.dowjones.com
-John R. Dorjlr1111l
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ny not only to the average's good per-
formance, but to the tremendous power
of compounding over long periods.
According to Ibbotson & Associates
of Chicago, average compound annual
investment returns have been 1:!.5% on
small stocks from January 19:!0 through
August 1996. Over the same time, the av-
erage return has been only ~.2% on in-
termediate-term bonds and :J.7% on
Treasury bills.
Stocks vs. Other Investments Real estate, mea-
sured over a
slightly different
period, has provid-
12.S~~ ed an average
compound annual
return of 11.1(;'~.
For the past 20
years, Ibbotson
figures that small
stocks have re-
turned an average
Sources. of 18.5% a year
Ibbotson Associates.
Ned DavIs Research and large stocks
14.2%. That com-
pares with 10.7% for commodities, 9.8%
for bonds, 7.3% for Treasury bills, and
5.3% for gold. Inllation during the 20-
year periOd averaged 5.2'70.
Ibbotson uses Standard & Poor's 500-
stock index to measure larg-e-stock re-
turns, but the results aren't much dif-
ferent for the Dow industrials. Accord-
ing to Ned Davis Research, since the
S&PiOO was invented in 1920, it has re-
turned 1O.H% a year, and the Dow in-
dustrials 9.99%.
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