I made a comment in passing over the weekend about the market averaging 10% (or something close to it) per year.
Well get ready because that may be over, at least where the US is concerned. An assumption I have been working with for a while is that US based investors may need to broaden their horizons to average 10% per year. John Hussman had a comment this morning about the move from the 2002 has been smaller than normal and we have gone a very long time without a 10% correction, something Barry has been writing about for a while as well.
This is not a scary thing or meant to be a negative. From my viewpoint it is quite exciting. The world is evolving and so are the capital markets. If the US' role in the world economic order becomes a little less important over the next five or ten years this means other markets will become more important, that is capital would flow to these new future global leaders.
One of the reasons I love what I do so much is that it is always evolving. It is perpetually challenging. I can appreciate that challenging may not be what you want where your financial future is concerned but that is not the world we live in.
I think success in the future will require understanding different countries better than you do now. Also we will need to have a better understanding of market and economic cycles, the flow of capital and the really big themes which I think includes China, water, energy and currency as an asset class.
Adjusting to this means being able to focus on the big picture and not what the market is doing this week.
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10 comments:
According to Ed Easterling of Crestmont Research (See www.crestmontresearch.com) and his book "Unexpected Returns" the compounded rate of return for stocks 1900 to 2005 is 5% nominal and 3% after tax and adjusted for inflation. The 10% number is cherry picking off the last bull market.
If you go to his web site he has many interesting charts. One of the more interesting ones is his stock market matrix. It shows various return levels for the stock market based on starting and stopping points from 1900 to 2005.
His key point is that the market is much more volatile and that a long only holding strategy may not be optimal in the current market.
Russell
I wish that the markets were really effecient. Theoretically, using russell120's post, 7-8% would be pretax dollars plus inflation...umm now we're at that 10% every year. I could live with that, no more cycles.
On the other hand, back to reality, I see we will have a chance at another short fund, the USD. (Bet On The Dollar
Sep 11, 2006 Capitalizing on the currency craze, PowerShares and its alternative-assets partner Deutsche Bank have filed papers with the Securities and Exchange Commission (SEC) for the right to launch two exchange-traded providing “bullish” and “bearish” exposure to the U.S. Dollar Index. ) Roger: Would you prefer going with a basket or sticking with your one at a time currencies? The basket heavily weights the euro.
Yeah....it's way too hard to make money in stocks now. Things have changed. It used to be easy. Just buy and hold, and all that.
Why take all the risk when you can make 5% in the money market? Really!
And...the REAL return of the market ( the 5% ) is waaaayyyy to low. Why bother. It's a wonder Warren Buffet has a penny! And what about those owners over the last 25 years in some of the American Funds------who's gonna tell them they've been lied to? NOt me!
Initially I thought, why did you state the obvious on this post? But it is not "the obvious" to most individuals who are too busy with their careers and familiy to research heretofore eclectic asset
classes.To the rest of us who have the time and inclination, spotting trends across the huge expanse of alternative investing has become a passion born of necessity. Almost everything you listed was an improbable (or impossible) investment tract a decade ago.Now, they are not only familiar, but likely components of our investment portfolios. Two other points. Assets are much less expensive to buy and sell now than a few years ago, and the transparency and variety of most investment vehicles is much improved from yesteryear - important, I think.
These "trends" are not really all that hard for the average person to get. Pull up the largest holdings of the funds that have done the best this year, and last...and voila!
I still contend that when everyone's sure we ought to be invested this way or that...when everbody knows this....it probably is not going to happen.
g
G...I like your sarcasm.. a little spit in our soup is good...but you can't have it both ways..trends are easy to spot..and when you do it'll be gone. yeah , yeah, that's what they said about commodities and eem. And, the next new trend is....can we keep an open list of the ridiculous-who-would-believe choices?
I suggest specialized housing with built in alternative energy technology and prefab construction with global reach, including that bananna republic in louisiana, to serve the poor to middle class and the not so poor boomers who like year round camps called retirement villages.
...as soon as commodities were talked about in Barron's, and Jimmie Rogers was quoted everywhere about the 20 yr cycle----they have gone sideways at best, primarily down. EEM and ADRE the same. Cat's out of the bag.
What's next? WHO KNOWS. But it will not be what it has been the last 2 yrs.
It is just not that easy. If it were...then we could all load up, with the house mortgaged, on EEM, and commodities, currencies, right now and retire very soon. How likely do you think we will be talking ship to shore by next year?
g
The 5% is the pretax pre-inflation number. On the plus side it IS the COMPOUNDED return not the average. That makes a huge difference.
If I knew I could get a 4% compounding ABOVE INFLATION (which is the non-tax real % for 1900 to 2005) in a Roth account, I would be very happy. It would be like a supper-TIP.
My current efforts are a little better then that, but I doubt I can keep it up for 105 years.
Russell
Yeah, I keep trying to think what's next. Energy was hated and loathed Old Economy when you should have been buying it (hopefully with the Tech Bubble proceeds). So what's hated right now?
I can't think of much really.
My hated I don't mean down a lot today. I mean "yuck, don't go near that!"
Or maybe just off the radar. But I can't think of anything really off the radar either.
that the 10% is nominal I thought was implied. I'll post on this later
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