I’ve posted Entry #40 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called You Should Be Rooting for Stock Prices to Fall.
Juicy Excerpt: Small changes in the patterns by which stock returns play out can make all the difference. Few of today’s investors know this and it is in my view one of the most important realities of stock investing.
In 1980, we saw a return of 15.76 percent. In 2008, we saw a return of a negative 39.29 percent. What if the returns for those two years were switched? What effect do you think that would have had on your goal of accumulating $1 million in assets before you turned 65?
Such a change wouldn’t have any effect on the 30-year annualized return at all. That number is 7.39 percent in both scenarios.
But experience the big loss in the early days of the 30-year time-period rather than in the later days of the 30-year time-period and you meet your $1 million portfolio goal easily rather than coming up $100,000 short. $1,611,164. That’s the final portfolio balance in the scenario where you take your big loss -early and one of your many nice gain years late.