munKNEE.com Your Key to Making Money
One of the great myths about investing that we’re told by the mainstream
investment education is that we should “buy and hold” for the long term [but, as this article will explain,] it’s time to move on from the mainstream. There’s too much technology and too many global options now to be lulled into conventional investments that are born to lose.
By Simon Black (sovereignman.com) in an article* originally entitled Here’s what happens when you buy stocks at their all time highs going on to say:
I remember being taught in a personal finance class long ago that I should just buy the S&P 500 index, walk away, and that years later I will have achieved huge gains.
The premise is that over a long period of time, it doesn’t really matter at what point you get in and out. The long-term trend of the stock market portends that you will make money.
It’s those kinds of investing myths that become axiomatic through repetition. You keep hearing the same thing over and over again and pretty soon people believe it.
Let’s look at the data.
It’s true that stock markets have plenty of peaks and troughs. Going back to the last relative peak, the Dow Jones Industrial Average (DJIA) hit just over 14,000 in October 2007; back then this was an all-time high.
If you had bought the DJIA back then, your return on the increase in share prices through today would work out to be a measly 3.5% on an annualized basis.
If you adjust that for taxes and inflation (even using the government’s own monkey numbers for inflation), you’re looking at a real rate of just 1.2%.
Now just think about everything that you saw in the last 7 years. The volatility. The risk. The turmoil.
Was it worth it? Probably not.
But if we go back further and hold an even longer-term view, the picture must brighten, right?
Let’s go to the peak before that. In early 2000, stocks once again reached what back then was an all-time high.
If you had bought the S&P 500 index back then (which is exactly what I was told at precisely the time that I was told), your annualized rate of return through today would be just 2.17%.
If you adjust that number for taxes and inflation, your real rate of return would be a big fat 0.14%… as in less than 1%. It’s practically ZERO.
Think about what you saw over the last 15 years in the markets—the collapse after 9/11, interest rates cut to zero, interest rates ratchet up again, huge swoons in markets, the credit crunch, Lehman’s collapse, the debt ceiling debacle, etc.
Is all that really worth a return of 0.14% per year? (i.e. 14 cents on every $100 invested)
It makes absolutely zero sense to do this with our money. But that’s what we’re forced into right now with most conventional investments at their all-time highs.
Bottom line—you don’t HAVE to be invested in the market. Sometimes the best investment you make is the investment you don’t make.
The challenge is, of course, that if you’re not invested in the market, your money is just sitting at the bank, earning less than the rate of inflation.
Welcome to the world of mainstream financial options. You’re damned if you do and damned if you don’t.
The conclusion here is very simple. It’s time to move on from the mainstream. There’s too much technology and too many global options now to be lulled into conventional investments that are born to lose.
*http://www.sovereignman.com/expat/heres-what-happens-when-you-buy-stocks-at-their-all-time-highs-15677/ (© 2014 Blacksmith PTE LTD – All rights reserved)
[The above post is presented by Lorimer Wilson, editor of www.munKNEE.com and www.FinancialArticleSummariesToday.com and the FREE Market Intelligence Report newsletter (sample here – register here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Stay connected!
- Register for our Newsletter (sample here)
- Find us on Facebook
- Follow us on Twitter (#munknee)
- Subscribe via RSS
Related Articles:
1. Time, Not Market Timing, Is Key To Investment Success
Time, not timing, is key to investment success. The bull market will end at some point. Stocks will go down and we will eventually see a bear market. These things happen. When it happens is up to Mr. Market. Let me explain. Read More »
2. Bubbles: Doing NOTHING Is Often the BEST Response – Here’s Why
The benefits of being able to detect a bubble, when you are in its midst, rather than after it bursts, is that you may be able to protect yourself from its consequences. [Below are possible] mechanisms to detect bubbles, how well they work and what to do when you think a particular asset is in one. Read More »
3. The Best Times to Buy & Sell (or not) Your Stocks to Maximize Returns
Statistically speaking there is an optimal time to buy or sell a security and knowing such, or at least knowing when not to do so, would be quite beneficial to your financial health. This article provides the answers as to what are the best months, and work its way down to half-hours of the trading day, to engage in trading. Read More »
4. Part 1: Should Financial Market Cycles Play A Role In Your Decision-making Process?
Financial markets are influenced by relatively predictable cycles…[and should] play a big role in one’s decision-making process just as they do in our day-to-day lives. This article, part 1 of a 3 part series, takes a look at several and discusses their relevance to one’s investment management process.
5. Should Financial Market Cycles Play A Role In Your Decision-making Process?
Financial markets are influenced by relatively predictable cycles and should play a big role in one’s decision-making process just as they do in our day-to-day lives. This article takes a look at several and discusses their relevance to one’s investment management process. Read More »
In the investment management process…[it is important to] actively monitor both short- and long-term cycles…in order to manage expectations based on historical patterns…[as well as] oscillators – diagnostic tools that help us measure a security’s upward and downward price volatility. To understand how oscillators work, though, you first need to become familiar with standard deviation and mean reversion. In this article, part 2 of a 3-part series, we do just that.
7. Buy, Hold or Sell? Time the Market By Watching Change In Market Trends! Here’s How
The trend is your friend and this article reviews the 7 most popular trend indicators to help you make an extensive and in-depth assessment of whether you should be buying or selling. If ever there was a “cut and save” investment advisory this article is it. Read More »
8. Time the Market Using Market Strength & Volatility Indicators – Here’s How
There are many indicators available that provide information on stock and index movement to help you time the market and make money. Market strength and volatility are two such categories of indicators and a description of six of them are described in this “cut and save” article. Read on! Read More »
9. Go With the Flow! Time the Market By Using These 6 Momentum Indicators
Yes, you can time the market! Assessing the relative levels of greed and fear in the market at any given point in time is an effective way of doing so and this article outlines the 6 most popular momentum indicators and explains how, why and where they should be used. Read More »
10. Don’t Try to Time the Market; Dollar-Cost Average Instead. Here’s Why
Everyone is worrying that we are at or near a market peak and this has investors extremely hesitant to buy stocks for fear of a big decline or perhaps even a crash. Obsessing over the risk of a crash, however, could lead to analysis paralysis but there is a basic investing strategy that can save investors from losing too much hair as they make the decision to buy stocks. It’s called dollar-cost averaging. Let me explain how it works and why it’s great for investors with long-term investing horizons. Read More »
