> In the chart you link to, the bonds are long term and were subject to more
> years of inflation than deflation during the years covered. This would not
> be the case with the strategy I suggested of buying only short term bonds.
> I agree that T-bills are not a good investment for the long term.
> As the standard deviations for the 3 asset classes indicate, stock returns
> are far more volatile than returns on bonds. If you take a smaller
> assortment of stocks, which is what most people end up with, the volatility
> will be even greater. Most people, if they purchase stocks for their own
> portfolios, can't afford to diversify widely, and mutual fund managers don't
Actually it is quite easy for anyone to diversify quite well, by buying into
index funds or tracking stocks such as the QQQ that index for example 100
stocks. You can also buy into the S&P 500 if you want. So diversification
is not a problem for anyone.
> seem to have all that good of a track record. Some volatility wouldn't hurt
> if you were prepared to hang on for the long term, it's true. And a person
> could transfer their money out of stocks and into bonds at retirement age
> when they want to withdraw money periodically. But what if a person reached
> retirement age just as the market went into a slump of several years'
> duration? Also, some of the volatility which appears negligible on a chart
They could sell a little bit of their portfolio for needed cash. In fact
that is the whole point- the idea is not to instantly sell off all your
stocks as soon as you retire. You want to only sell little pieces as
needed and let the rest continue growing.
> translates into rather severe losses for the individual investor.
Losses aren't actual losses until you sell a stock.
> Your info comes closer to changing my mind than other stuff I've seen, Rob,
> but I'd still feel queasy advising someone to put their life savings into
> the stockmarket.
Obviously you don't want to just jump in without educating yourself quite
a bit first. And even then you certainly don't want to jump in 100% unless
you are youngish.
> -----Original Message-----
> From: firstname.lastname@example.org
> [mailto:email@example.com]On Behalf Of Rob Sweeney
> Sent: Wednesday, June 07, 2000 3:48 PM
> To: firstname.lastname@example.org
> Subject: Investing (long term returns)
> See, for example, http://www.dljdirect.com/hti_t01.htm , for a quick
> table comparing inflation-adjusted returns for various asset classes.
> Over the long run, stock strategies such as buying the S&P 500 index
> whomp investments in either bonds or short-term instruments, or cash,
> adjusted for inflation.
> There are perhaps reasons why one might choose not to invest in US stocks,
> but over the long haul, net net returns and inflation resistance aren't
> them. Short term instruments (T-bills, commercial paper, cash) are
> particularly poor investments over the long term, even during inflationary
> periods [though less so then long-term debt during the same period if you
> need to trade the bonds during the bout of inflation]).
> These market behaviors are USA-specific. I don't know of any comparable
> measures for non-USA investment environments but I'm sure they could be dug
> up. Financial markets outside the USA have historically tended to be more
> volatile (risky) for various reasons, such as lower liquidity, increased
> political risk, and others.
> Of course, dissenting views exist. See, for example,
> http://viking.som.yale.edu/will/newsclips/5912206a.htm (Google is my
> Disclaimer: I work for a Wall Street firm in asset management (but on
> not sales!)
> /rs Rob Sweeney email@example.com http://www.rsie.com/
> Time is a warning.
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