Chapter 2 · Open anytime
Index funds, bonds, the money market and dividends
An index is a list of companies with a rule for averaging their value. The S&P 500 covers the 500 largest US companies, each weighted by its market value.
The idea
In short
An index: the S&P 500
- 1An index is a list of companies with a rule for averaging their value. The S&P 500 covers the 500 largest US companies, each weighted by its market value.
- 2You can't buy an index itself; you buy an index fund or ETF that copies it. One purchase gives you a slice of 500 companies.
- 3Why it matters: instant diversification and very low costs, often under 0.1% a year.
A bond
- 1A bond is a loan. You lend to a government or a company, it pays a fixed interest (the coupon) and returns your money at the end.
- 2Key point: when interest rates rise, the price of existing bonds falls. A bond paying 2% is worth less when new ones pay 4%. The longer the bond, the bigger the effect.
- 3In the game: 10-year US Treasury bonds (almost no default risk) and corporate bonds rated Baa (medium quality; they pay more because the company could fail).
The money market (T-bills)
- 1Short loans to the US government, usually 3 months. When they mature you buy new ones at the new rate.
- 2The price barely moves. The real risk is not beating inflation.
Dividends
- 1A dividend is the share of profit a company pays out in cash.
- 2The S&P 500 figure in the news is price only. The real return (“total return”) adds reinvested dividends; the game uses total return.
In the data
What history shows
$10,000 in each investment, 1928–1949
Real data, January 1928 to December 1949: years before any mission, so nothing is given away. Monthly returns from Robert Shiller and Aswath Damodaran.
Real figures
The numbers
Real figures, Jan 1928 – Dec 2023 (annual data)
Swipe the table sideways to see every column.
| $10,000 in 1928 | Value in 2023 | Yearly return | Worst year |
|---|---|---|---|
| US stocks (with dividends) | about $78.7 million | 9.8% | 1931: −43.8% |
| Corporate bonds (Baa) | about $4.95 million | 6.7% | 1931: −15.7% |
| Gold | about $1.0 million | 4.9% | after Mission 5 |
| 10-year Treasury bonds | about $728,000 | 4.6% | after Mission 7 |
| Housing (prices only) | about $536,000 | 4.2% | after Mission 3 |
| Money market (T-bills) | about $225,000 | 3.3% | never negative |
| Inflation | prices ×17.8 | 3.0% |
$10,000 invested, no costs or taxes unless the title says so. From the game's own data (see the sources at the bottom of the page).
Remember
Takeaways
- Dividends matter: the S&P 500 figure quoted in the news leaves them out. Always check that a return you compare is “total return”, with dividends reinvested, as in this game.
- The money market never loses, but it doesn't make you richer: 3.3% a year against 3.0% inflation is about 0.2% real.
- More risk, more expected return, with bigger falls: −43.8% in 1931 is the price of 9.8% a year over the long run.
One more takeaway unlocks as you finish more missions.
Practice, not scored
Quiz
1. Rates rise from 3% to 5%. What happens to the price of a bond you own that pays 3%?
2. Why did corporate bonds fall in 1931 but Treasury bonds didn't?
3. What does “accumulating” mean for an ETF?