I’ve posted a Guest Blog Entry at the Everyday Tips and Thoughts blog titled Stock Investing Without All the Drama.
Juicy Excerpt: Buy index funds and you avoid the risk of picking bad stocks. But you take on another kind of risk — the risk of investing heavily in stocks at the wrong time. That 6.5 percent return is only an average. There have already been three times in U.S. history when stocks have provided an average 20-year return of 0.7 percent (including dividends).
Those who pick stocks effectively can do well even during bear markets. Indexers cannot. When the market does poorly for long periods of time, indexers get killed. Invest heavily in stocks at times when the long-term return is lower that what is available from money market accounts and you will be working well into your 90s.
Is there a way to avoid investing heavily in indexes at times when the long-term return is likely to be poor? There is.
Juicy Comment #1: Very interesting approach! I’m always open to new ideas that doesn’t dismiss fundamentals. I will check this out.
Juicy Comment #2: Valuation informed indexing sounds good to me. This will work really well in retirement IMO.
Juicy Comment #3: The problem is that you don’t get the big long term returns without the elation of bull markets and the depression of bear markets.
Juicy Comment #4: There’s a Social Taboo in this field against pointing out errors made by the people who do investing studies.