Friday, December 5, 2008

Experts Say...

One of the grand lies out there is the notion that in the long run, investing in equities (that's stocks for the Obamatrons out there) is a can't miss proposition. And while that may be some of the time, it is certainly not true all of the time.

Even with the massive bull of the 1990s, had you invested $100,000 in the S&P500 in 1990, you would today have around $150,000 give or take. A fixed income investment earning 2.5% would have been just as good. Fixed income earning 4% would equal $210K today. Plus you wouldn't be losing any sleep at night since these investments would be unaffected by what's happening in the stock market.

Going back to 1980, $100K invested in the S&P500 would be worth about $800K today. Not bad. But then again in 1980 you could have bought a 30 year bond with a 12% yield, meaning you'd be at $861K today. And again,sleeping well.

These calculations don't take into account dividends which the s&p500 would have had a lot of. And reinvesting dividends would increase the return on equities. But there are also higher costs with equities. Trading costs if you buy individual costs or fees as high as 5% for mutual funds that will over time erase the dividend component.

Just like real estate which can be a good investment, stocks can be as well. But stocks can also be piss poor investments and not just short term either. As I have said here before it took until 1954 for the Dow Jones Industrial Average to get back to what it was in 1929, 25 long years. And history can and often does repeat itself. It is almost 9 years later and nasdaq is still nowhere near the 2000 high of 5100. So when you hear the likes of Kudlow and Dave Ramsey tell you now is a great time to buy stocks, because they are so cheap, keep in mind cheap is a relative term.



Anonymous said...

Just read your little comment on HotAir:

"Canadians are some of the most virulent anti-Americans you will ever meet"

Way to demonize an entire country you ignorant fuck. More so, when that country is standing strong beside you in Afghanistan taking more casulaties per capita than ANYONE there.

Here's another tidbit for your vault:

"Americans are some of the most ignorant, unappreciative, people you will ever meet"


Ed said...

ooooohhhh kay

I stand by that comment. Canadians by and large hate Americans. Not all obviously but most.

Oh and I am a Canadian citizen as well so I think I know a little something of what I speak.

And yes I know all about the soldiers in Afghanistan. That is admirable and I never have nor will I ever disparage the Canadian troops that are there.

Anonymous said...


Stand by it all you want, but it doesn't change the fact that it's an ignorant comment.

"Oh and I am a Canadian citizen as well so I think I know a little something of what I speak."

Citizen or not, you clearly don't know what you speak of.


Ed said...

Fine live in your make believe world

Dark City said...

As a fellow Canuck I'll agree with Ed on this one.

While Canadians aren't flag burning, rioting anti-Americans a large number of Canadians define "Canadian" as "not American". Also, at least two major political parties (Liberals and NDP) have anti-Americanism as a defacto plank in their platform.