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| Fellow investors, The second half of the year is here. How much do you remember about the first half? Here's a quick quiz. You can find the answers, plus a few little lessons, by scrolling down. 1.) As of June 30, the total market value of the S&P 500 was:
a.) $52.5 trillion
b.) $5.25 trillion
c.) $525 billion
d.) $52.5 billion 2.) Share repurchases by companies in the S&P 500 in the first quarter of 2025 set a quarterly record. How much stock did companies buy back?
a.) $2.935 billion
b.) $29.35 billion
c.) $293.5 billion
d.) $2.935 trillion 3.) In the four trading days from April 2 ("Liberation Day," when President Trump announced his initial tariff plan) through April 8, U.S. stocks:
a.) lost 1.2%
b.) lost 12%
c.) gained 1.2%
d.) gained 12% 4.) Below is a list of year-to-date total returns. Match each with its respective index: the S&P 500, MSCI All Country World ex-USA (international stocks), Russell 2000 (small U.S. stocks), Bloomberg U.S. Aggregate (bonds).
a.) 17.9%
b.) -1.8%
c.) 4.0%
d.) 6.2% 5.) What percentage of the S&P 500's year-to-date total return came in June alone?
a.) less than 20%
b.) 25% to 50%
c.) 50% to 75%
d.) more than 75% | |
| |  | | Winslow Homer, "The Country School" (1871), St. Louis Art Museum | | | | |
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| In our last issue, I mentioned that Victor Haghani and James White of Elm Wealth recently asked a good question: "What is the lowest risk-free, after-tax, after-inflation rate of return you would accept in order to forgo all other investment opportunities for the rest of your life?" (I asked a similar question in a column years ago.) Reader Mike Robertson from Hong Kong quipped:
If I could buy a risk free return that would satisfy all current spending needs I would immediately retire and pay 1% a year for the privilege 😉 And Greg Larsen from Bend, Ore., asked:
Let's say I have cash available for investing of $100,000 on January 1 and for simplicity, all tax and inflation becomes due on December 31. My net federal tax (not marginal) is about 17%. My state net tax is about 7%. And inflation is 3% per year. So on December 31 my $100,000 has gradually become $97,000, then $80,000, then $73,000. Are you saying that I need an investment rate of return of 17% plus 7% plus 3% plus 2.5% = 29.5% to "be happy"? I asked Haghani of Elm Wealth to respond. He ran the numbers, then asked perplexity.ai to craft a polite and helpful response. Here it is: Thank you for your thoughtful email and for working through the numbers. The calculation for a "net-net-net" return—the after-tax, after-inflation, after-fee return you actually get to keep—doesn't involve simply adding together your tax rates, inflation, and desired net return. Instead, you need to adjust for each factor sequentially, using compounding.
Let's break it down with your numbers:
Federal tax: 17%
State tax: 7%
Combined tax rate: 24% (assuming state taxes are deductible from federal, otherwise you'd need to adjust for stacking)
Inflation: 3%
Desired net-net-net return: 2.5%
Step 1: Calculate the after-tax return
If your investment earns a nominal return of R, your after-tax return is: R×(1−tax rate)
Step 2: Adjust for inflation
Your after-tax, after-inflation (real) return is: (1 + after-tax return)/(1+ inflation rate) -1
Step 3: Set this equal to your desired net-net-net return and solve for R:
Let's use your numbers:
Combined tax rate: 24% (0.24)
Inflation: 3% (0.03)
Desired net-net-net: 2.5% (0.025)
Solve for R:
≈0.0733 or 7.33%
Conclusion:
To end up with a 2.5% after-tax, after-inflation return, you'd need a nominal pre-tax return of about 7.3%—not 29.5%. The effects of taxes and inflation compound, but they don't simply add up. This method gives you a much more accurate sense of what you need to earn to reach your target "net-net-net" return. | |
| |  | | Utamaro, "Net Fishing at Night on the Sumida River" (ca. 1800), Cleveland Museum of Art | | | | |
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| 1.) As of June 30, the total market value of the S&P 500 was:
a.) $52.5 trillion
The U.S. stock market is huge! Whenever you hear some market commentator getting breathless about "billions of dollars" moving around, remember that it takes 1,000 billions to make a trillion. And even $1 trillion is less than 2% of the total value of the U.S. stock market. A headline like "Investors yanked $10 billion out of stock funds" sounds scary, until you mentally divide by $50 trillion and get 0.02%. 2.) Share repurchases by companies in the S&P 500 in the first quarter of 2025 set a quarterly record. How much stock did companies buy back?
c.) $293.5 billion
With uncertainty running high, companies are buying back more of their own shares—even though stock prices are high, too. 3.) In the four trading days from April 2 ("Liberation Day," when President Trump announced his initial tariff plan) through April 8, U.S. stocks:
b.) lost 12%
It was three months ago, people. And you forgot already? What should that tell us about how accurately we assess the past? 4.) Below is a list of year-to-date total returns. Match each with its respective index: the S&P 500, MSCI All Country World ex-USA (international stocks), Russell 2000 (small U.S. stocks), Bloomberg U.S. Aggregate (bonds).
a.) 17.9% MSCI All Country World ex-USA
b.) -1.8% Russell 2000
c.) 4.0% Bloomberg U.S. Aggregate
d.) 6.2% S&P 500
Maybe the biggest U.S. stocks won't always be "the only place to be." 5.) What percentage of the S&P 500's year-to-date total return came in June alone?
d.) more than 75%
The S&P 500 returned 5.09% in June, or 82% of its first-half 6.2% return. Markets tend to earn their gains (and losses!) in surprisingly short bursts. | |
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| |  | | Helene Schjerfbeck, "Girls Reading" (1907), Finnish National Gallery / Ateneum Art Museum | | | | |
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| |  | Mary Cassatt, "The Letter" (ca. 1890), Art Institute of Chicago | | | | | Have a question you'd like me to answer? Want to weigh in on what you just read? Got a tip on something that I or my colleagues should investigate? Itching to tell me I'm wrong about something? Just reply to this email and I'll see your note. Don't forget to include your name and city. | | |
| Q: | Mr. Zweig states his personal net-net-net is 2.5% and that long-term [Treasury inflation-protected securities] are at 2.6% currently. Has he moved all of his investments into these notes? Or even a very large portion of his assets? If not, why not? And if so, why?
— J. Kanner, central Mississippi | | |
| A: | I haven't moved all of my investments into TIPS. Outside a retirement account, they create a tax headache. However, a "laddered" portfolio of TIPS, with every available maturity across a span of decades, offers something unusual: You can know the exact dollar amount of the income you'll earn from it every month between now and 2055, after inflation. (That assumes you hold each TIPS until maturity.) Building a TIPS ladder sounds complicated, but I found it surprisingly easy to do. I've put about half my retirement assets in a TIPS ladder. Yes, I have some concerns about the credit quality of U.S. Treasurys (and the integrity of U.S. inflation data), which is why I haven't put all my retirement into TIPS. But if Treasurys go bad, it's hard to imagine that everything else won't, too. And if Treasurys retain their soundness, that assurance of a knowable amount of inflation-adjusted monthly income will comfort me for decades to come. | | |
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| Be well and invest well, Jason Did a friend forward this email? Sign up here. | |
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| |  | | Martin Johnson Heade, "Thunder Storm on Narragansett Bay" (1868), Amon Carter Museum of American Art | | | | |
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| [In speculative manias] it usually happens that the reckoning comes from an unexpected cause; also that it comes at the moment when the public and the speculators have reached the conclusion that it can never come.
—Alexander Dana Noyes | |
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About The Intelligent Investor | | |
| In The Intelligent Investor, Jason Zweig writes about investment strategy and how to think about money. To send feedback, reply to this email or send a note to intelligentinvestor@wsj.com. Sign up to get an email alert every time Jason publishes a column. This newsletter is a benefit for subscribers of The Wall Street Journal. Thank you for supporting our journalism. | |
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