Welcome new reader!

Financial news I consider important, with my opinion, which is worth as much as you paid for it.
Please click HERE to read a synopsis of my view of the financial situation.

Monday, June 1, 2009

Buy and Hold Equities

When reviewing my previous post, I noticed something interesting. Let's say you are a buy and hold equity investor, NEVER trying to time the market. Assuming your keeping the stock until it is a "forced sale", let's take a look historically at a "worst case" scenario.

If a person bought the US Stock index (and on "average" any US Stock) back in 1929, by 1960, your purchasing power would be restored. So 30 years to just get back to even. But wait, if your 20 in 1930, by 1960 you are only 50. By 1975 you would be 65, at that time I assume you would be forced to sell to cover living expenses. After all people didn't live as long in 1975 and 2009. So between 1975 and 1985 all sales of investments would be losers, selling at a "purchasing power" below the initial investment. At the ripe old age of 75, all sales would be for a modest profit moving forward.
From WebSurfinMurf's Financial Blog

So for a buy and hold strategy, using historical experience, which by the way is NO indicator of future events, buying and holding US stocks from 1929 would take 55 years before decent returns on investments occur. (Assuming zero market timing action taken)

Mind you, 1930 world and 2009 world are two different worlds. Things change MUCH quicker now, so this long period I doubt could ever be repeated again. For one thing, China/India/Brazil have awaken, and they should drive the next round of economics.

I don't know about you, but I don't want to wait 10+ years from October 2007 to wait for my return. And I assume neither does the US government considering all the debt the US has. This lends additional credence that in the face of a deflationary collapse, such as the last great depression, that the government will try very hard to create inflation. They know history, and they will probably try for a different outcome.

Buy resource stocks, such as gold miners, over the next year. :)

No comments:

Post a Comment