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I pick ten years because that figure is always stated by the financial industry as looking at the market in a long range perspective.
Regardless the stock market is not the big money making vehicle that people make it out to be. I think a nice 4.25% 5 year CD would be better.
The financial industry looks at the last 10 years of performance. However, they do not use it as a measure of future expected returns...which is what you are doing.
Are you familiar with the Capital Asset Pricing Model?
Basically, you are telling me that you expect the stockmarket to 2% in the future. If the markets felt the same way...then the prices would adjust to bring the expected return higher commensurate with the risk involved.
Out of curiosity, what sort of educational\professional background do you have in finance\investments\economics?
Not sure what the OP is trying to get at here except that maybe he doesn't have the stomach to deal w/fluctuations of the equity market?
If you have a long term horizon than these drops shouldn't affect how you allocate your AA (except for yearly rebalancing).
If they do, then you should trim down your equity portion..
They aren't talking about fluctuations but rather that thier *analysis* leads them to expect higher future returns from a CD paying 4.25% than from the stock market.
Out of curiosity, what sort of educational\professional background do you have in finance\investments\economics?
Hey Mathguy,
As long as we're asking these sorts of questions and you are teaching us how ignorant we really are, perhaps you could give us your background as well. I'd be curious to know your psychological and sociological justifications for treating people like imbeciles.
I think people are catching on that the market isn't what "they" say it is.
Seems like everyone...on tv, on yahoo finance, msn, cbs marketwatch....they all scream in unision...the market goes up 10% a year, stocks for the long term, etc.
Yet the facts are sort of ugly. Stock returns are highly variable. The "8-10% a year" claim is very misleading and irresponsible to put out, in a blanket, generic way.
It's actually rare for them to go up exactly 8 or 10% a year. And with the DOW or S&P, they can stay flat for 10 years or longer.
I think people are catching on that the market isn't what "they" say it is.
Seems like everyone...on tv, on yahoo finance, msn, cbs marketwatch....they all scream in unision...the market goes up 10% a year, stocks for the long term, etc.
Yet the facts are sort of ugly. Stock returns are highly variable. The "8-10% a year" claim is very misleading and irresponsible to put out, in a blanket, generic way.
It's actually rare for them to go up exactly 8 or 10% a year. And with the DOW or S&P, they can stay flat for 10 years or longer.
People on those financial channels have a vested interest in the market doing well (ie CNBC is part of GE).
Its actually very simple. In 73-74 the dow lost 40-50% of its value I believe. Look at what happened in Oct of '87...1 day lost so much value...
However the smart people didn't panic and avoided the noise and the market came back like it always does...
If you have a plan and taylor your portfolio to your risk tolerance & buy/hold tax efficient mutual funds, you're on your way....
They aren't talking about fluctuations but rather that thier *analysis* leads them to expect higher future returns from a CD paying 4.25% than from the stock market.
My crystal ball is too cloudy to predict whether the market short term will outperform CD's....no one knows...its just a guess....
People on those financial channels have a vested interest in the market doing well (ie CNBC is part of GE).
Its actually very simple. In 73-74 the dow lost 40-50% of its value I believe. Look at what happened in Oct of '87...1 day lost so much value...
However the smart people didn't panic and avoided the noise and the market came back like it always does...
If you have a plan and taylor your portfolio to your risk tolerance & buy/hold tax efficient mutual funds, you're on your way....
I'm suprised people still believe in the "8-10% a year" myth. Seems like eventually people would catch on and look at the actual data.
I've made more on ebay in the last 10 years, than I would have with stocks...the supposed "best investment" ever. Even with todays rally the market is where it was in january of '99. 9 and a half years of nothing.
I agree don't panic, and nows the time to buy, better buying low than high.
[quote=John23;4488987] Even with todays rally the market is where it was in january of '99. 9 and a half years of nothing.
QUOTE]
But isn't that why you hold equities for the LONG term? Look at the data set from 10 yrs before that......stocks did EXTREMELY well....
Sure, the past 10 yrs have been lousy for large caps, but if you're looking to hold for 5-10 years, this is the chance you take.
That's why its extremely risky to weight a portfolio heavily in equities for a short period of time...
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