I'm reading this article, which makes the following claim:
In 1974 the Dow closed at 616*. At the end of 2014 it was 17,823*. Over that 40 year period (January 1975 – January 2015) the S&P 500 (a broader and more telling index) grew at an annualized rate of 11.9%** If you had invested $1,000 then it would have grown to $89,790*** as 2015 dawned.
*https://www.mdleasing.com/djia-close.htm **http://dqydj.net/sp-500-return-calculator/ ***http://dqydj.net/sp-500-dividend-reinvestment-and-periodic-investment-calculator/
I'm not specifically concerned with the third claim ("If you had invested $1,000..."), or with any of the advice the author gives, but with the following:
As far as I'm aware, both of these indices grow when the average price for a constant portion of a company in the index grows. However, when a company fails and goes bankrupt, it will be removed from the index. This suggests to me that it is no wonder that the Dow Jones or the S&P 500 always does well: The companies that fail get removed, and stop influencing the average worth.
But doesn't this also mean that the fact that the performance of the Dow always is good (in the long term) doesn't straightforwardly mean that investing in a fund that follows the Dow Jones is always good, since the risk of failure isn't reflected in the value of the Dow Jones?