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Are you sure you want to continue your buy and hold strategies? January 19, 2010

Posted by shaferfinancial in Finance.
Tags: ,

Check out these sobering charts from Doug Short.

The actual historic market returns has much variability.  For a twenty year return it ranged from -.06% to 13.6%.  The most recent 20 year return for the S & P is 5.38%.  If you do a 30 year span then the variability decreases to between 1.91% and 11.9%, but that is hardly comforting.  Think about the possibility of investing for 30 years in the market and only getting an average of 1.91%!  Put 2% in a retirement calculator and see how long it takes for you to build enough wealth to retire on!

What is really scary is to look and see how often the return would be around 5%.  In fact the truth is that is the most likely result.  Now, one can continue to hope that they receive a return that is toward the high side of the variability [really pray for those results] or you can begin to question the strategy and the people pushing this strategy at you.  I mean if the mutual fund industry would tell you that after 30 years of investing you are going to receive somewhere between 2% and 12% average return and the most like return is around 5%-6%, would you be so excited about investing in that strategy?  Would you consider other strategies if you could see how unlikely it is to really save your way into a comfortable retirement?



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