Compare the average salary increase of U.S. employees (~3-5% per year) with the average returns of the S&P 500, high-growth tech stocks ($NVDA, $TSLA, $MSFT), and dividend-paying stocks ($KO, $JNJ). Would an employee be better off relying on raises or investing their paycheck wisely?

The average salary increase of U.S. employees, although positive, is generally lower than the average returns of various investment options, suggesting that investing wisely could potentially yield better long-term outcomes. Here's a detailed comparison:

1. Average Salary Increase:
   • The average salary increase for U.S. employees has been around 3-5% per year.
   • This is a stable increase, but it is essential to note that it does not account for inflation, which can erode the purchasing power of the salary over time.

U.S.: Average salary per job

2. Average Returns of Investments:
   • The S&P 500, a broad market index, has shown an average return of 0.13%.
   • High-growth tech stocks like Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA) have average returns of 0.8%, 0.15%, and 0.1%, respectively.
   • Dividend-paying stocks like Coca-Cola (KO) and Johnson & Johnson (JNJ) have average returns of 0.14% and 0.19%, respectively.

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s&p 500 average returns(1)

avg(return on investment)2024.12.31
0.13

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3. Comparison and Insights:
   • S&P 500: The S&P 500's average return is slightly higher than the average salary increase, indicating that investing in a diversified index fund could potentially outperform a single salary increase over time, accounting for inflation.
   • High-Growth Tech Stocks: These stocks have higher average returns than the S&P 500, suggesting that investing in high-growth tech stocks could offer better long-term returns than a salary increase, especially if these stocks can sustain their growth rates.
   • Dividend-Paying Stocks: Dividend-paying stocks offer a consistent return, but their average returns are lower than those of high-growth tech stocks and the S&P 500. However, they provide an additional benefit of regular cash flows, which can be reinvested or used for other purposes.
4. Conclusion:
   • Investing Wisely: Given the higher average returns of the S&P 500 and high-growth tech stocks, investing a portion of the paycheck in these areas could potentially yield higher long-term returns than relying solely on salary increases.
   • Diversification: It is important to diversify investments to manage risk, as high-growth tech stocks may be volatile compared to a diversified index fund.
   • Inflation Consideration: When comparing the average salary increase to investment returns, it is crucial to consider the impact of inflation on the purchasing power of both the salary and investment returns.

In summary, while a salary increase is a guaranteed addition to one's income, investing in a diversified portfolio of stocks, especially high-growth tech stocks, could offer higher long-term returns. However, it is crucial to balance this strategy with other financial needs and to consider the impact of inflation on the real value of both salary increases and investment returns.