Comments on: Why the Long-Run is so Important When Investing in Stocks

By: campton-stock market investing

campton-stock market investing — Thu, 16 Oct 2008 04:56:55 +0000

I use to see the same kind of blogs.But,the way you explained is really clear and genuine.

By: lorax

lorax — Thu, 14 Jun 2007 02:32:58 +0000

This is pretty good, similar to Bogle’s analysis.

What’s not explicitly mentioned though, is that your actual returns depend on how much you have invested at a given time. This market isn’t an annuity table. So if you’re adding to your investments you want a bear market early on. But a retirement can be doomed by an early bear market – you’ll have to sell investments in a down market and it can be quite difficult to recover.

Risk is as important as returns, but it isn’t as sexy to talk about.

By: JLP

JLP — Tue, 12 Jun 2007 13:37:28 +0000

Andy,

Misleading? I don’t think so.

By: Neith

Neith — Tue, 12 Jun 2007 12:21:20 +0000

Andy, I’m not sure I understand your comment. The return numbers are for the entire (rolling) period specified – one year (with significant variation), five years (with somewhat less variation), ten years and 20 years, not annual returns for the years included. If you look at the standard deviations of the periods as well (though he doesn’t present them here, but you can find them easily enough), you find that the standard deviation decreases, which indicates that the real risk of the investment decreases for the period as the period increases.

I don’t think the point here is that the volatility of any given year decreases, but that the likelihood of negative returns decreases to essentially zero with a long enough time horizon.

By: Andy

Andy — Tue, 12 Jun 2007 06:42:45 +0000

This is a misleading way to look at returns. Sure the annual returns are smoothed out, but the total returns aren’t. Your charts make it seem that the variation in returns decreases with time when in fact it increases.

By: Dough Roller

Dough Roller — Mon, 11 Jun 2007 23:59:06 +0000

This is an excellent presentation of the data. The key to me here is the recognition that investing is a long-term proposition. Investors need to be prepared to weather a sustained down market like the 1965-1974 period you highlight. All investors should ask, if we went through another period like 1965-1974, would I hold steady, or would I sell?

By: Neith

Neith — Mon, 11 Jun 2007 20:41:49 +0000

I’ve recently seen similar info in a book by Paul Merriman. He aggregates similarly to this, but over a longer period. He also then further indicates what happens when you diversify. That is, he creates model portfolios with incremental increases in stock/bond splits, and in domestic stock/international stock/bond splits, etc. He eventually includes growth and value stocks for domestic and international large-cap, mid-cap, and small-cap indices. It is extremely instructive to see the effects of proper diversification and long-term investing. Good work!

By: Patrick

Patrick — Mon, 11 Jun 2007 19:33:35 +0000

I’ve seen some similar data before, but of course it was buried in 10 pages of yada, yada, yada…

I like how you present this in a very straight-forward and easy to understand manner!

I’m sure I will refer this post to others in the future. Thanks for doing the legwork!

By: Analyzing Wealth

Analyzing Wealth — Mon, 11 Jun 2007 18:53:42 +0000

Some links of interest

I’ve been doing some reading this morning and thought I’d highlight some posts that I enjoyed