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In The Money September 25th, 2008

Articles that discuss the earning of money, the investment of money, the saving of money.

What Has History Taught Us?

 

Jerod Fenton
CFP®, RFC, CSA
Senior Financial Advisor


For many years I have enjoyed studying the history of the stock market and the economy in general. My fascination began in 2000 watching the NASDAQ crater. I became intrigued with the market fallout, especially how Wall Street could have been so wrong.

Many of today's investment philosophies are based on the belief that the US stock market will rise over time and this seems to be supported by historical data. The historical returns that most advisors have referenced for the US stock market are returns of 7-8% over long periods of time. This is true over 40, 60, or 100 years but there are times over a 20 year period the market has been flat. What happens to your retirement projections if you retire at the beginning of a flat market?

The chart above and to the right is one of the best educational pieces I have found.

What I want you to learn from this chart is the following:
• The stock market has a history of going from Cheap to Expensive and back again over long periods of time (P/E, Price/Earnings Ratio)
• The larger the bull market, the longer the bear market that follows it.
• Inflation historically rises from low points to higher points during bear market periods.
• The stock market historically does well during periods of falling interest rates and What does this mean for the future? Investors need to prepare themselves for the fact the US stock market (as a whole) might stay flat or "muddle through" for several years to come. This is one reason I love the Harvard Endowment's investment approach for the upcoming 5-10 years. This approach should help diversify your portfolio with low-correlated assets thus hopefully giving you a higher return with less risk.

If you are interested in learning how to construct a low-correlated asset portfolio, please feel free to contact me at 760-705-3517.

 

 



 

 

 

 

 

 

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