The big lie

I once read an article that ripped to shreds the investment thesis that the return on a balanced stock market portfolio is around 7%. That math only works if you invest for 100+ years. You and I have about 30 good years of investing with the goal of not having to work as a greeter at Walmart when we “retire”.

Businesses, pensions, 401ks and retirement plans have been built on that bullshit thesis. It’s easy to look at the long term trend and have a financial planner show you that if you invested X today you would have Y at retirement based on average results. What that does not take into consideration is when is X. At what date are you starting this process?Is your X today? Would you want to invest in the market while it’s this high? What if your X was July 2007 and you saw your nest egg drop 52% through January 2009.  52% drop! Ironic how so many people remember what happened just a few years ago. It would have taken you until December 2012 just to get back to break even.

Conversely what if you decided in January 2009 to start and had made 200% up through today.  Not all time periods are equal and we are precipitously close to hitting the rest button.

One, if not THE single biggest, factor in your average return is the time frame in which you invest. So tread carefully and keep an eye on your brokerage and retirement accounts. One wrong move and everything changes very quickly.

But hey, maybe it’s different this time. Just because it looks like a bubble doesn’t mean it is gonna pop.


For a better and more informative take on the subject read this article from Real Investment Advice.


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