This is a very old slide from my past but it shows an important message.
It shows the effect of either putting $100,000 into a National Australia bank deposit in 1972, or investing $100,000 in National Australia Bank shares (NAB.ASX), and living off the interest or the dividends.
At the end of 1997, the bank deposit was still $100,000 and the annual interest earned was slightly less than in 1972 at about $6,000.
At the end of 1997, the shares were worth about $1.95m and the annual dividends (disregarding the franking credits) had grown to about $100,000 per annum.
You might suspect the chart was designed to show the sharemarket in its best light. But this is incorrect.
In reality 1972 was a very bad year for timing your entry into any shares including NAB shares. As the graph shows, the shares fell in value for the next two years in the 1972-4 bear market and lost about 40% of their value.
Likewise you can see the 1987 crash led to a sharp fall in value but that was quickly recovered also.
While bank shares have not enjoyed similar passive gains in the past decade or so, the principle remains that over the longer term, there is simply no comparison between the lifestyle opportunities enjoyed by the share owner, compared with the depositor.
