Why Dow 11,000 Is Worth a Lot Less Now Than in 2001:

Adjusted for inflation (as per the Bureau of Labor Statistics), the Dow would have to reach 13,570 to equal the “purchasing power” value of Dow 11,000 in 2001. ($1 in 2001 equals $1.23 in 2010.)

Let’s take a hypothetical investment in the Dow of $11,000 in 2001. That dollar amount equals the Dow’s nominal price level. If a person has reinvested dividends from the $11,000 investment in the DJIA, that portfolio would now be worth about $14,066, based on theaverage Dow dividend yield of 2.66%.

So a “buy and hold” investor who reinvested dividends in the Dow for 10 years has stayed one step ahead of inflation, but not by much. The total return for a decade of ownership of the DJIA adjusted for inflation is a meager 3.6%.

Proponents of “buy and hold” have little to show for the past decade, and those who insist nominal prices are all that matters suffered a 23% decline in the purchasing power value of their portfolios, even though the Dow is near the same level it was in 2001.

[Thanks to Colin for the link.]