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business newsManaging Your Retirement Fund: The Next 10 Years
By
Vinny Catalano Apr 14, 2010 1:30 pm
How to invest should the next decade be anything like the last.
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To help, selecting a period of time that captures the longer view -- a long enough time period within which trends and themes of important secular (multi year) can be observed -- enables an investor to see past the noise of the moment and plan more effectively for the future: a place where we will all live.
One such time period is the decade. Decades provide a very productive period of time as they usually encompass one or more business and political cycles. Conveniently, we're starting at the end of one decade and the beginning of another -- a good point to pause, review, and plan ahead.
Here are some suggested strategies for the next 10 years:
1. Look to equities as the best performing asset class (and time the market)
Let’s begin our review with a valuable piece of information: It's a historical fact that stocks are the best asset class for the longer-term investors. Therefore, when it comes to investing in the stock market, the investment decision is rather straightforward: Invest to match the market or invest to beat the market. Matching the market is rather easy to do; buy an index fund, one that tracks the broad market. Beating the market requires sound decision-making, patience, and an ability to know when to go with the crowd and when to go against it. Ride the momentum or buy low/sell high.
Some of the investment results of the first decade (2000-2010) are fairly well-known -- and not to the liking of most investors. As the first chart shows, investing in large-cap stocks (S&P 500) has been a losing proposition.
However, stocks were a losing proposition only if one were a buy-and-hold investor. As the chart shows, an investor with some semblance of market timing would have had to make four correct calls (out, in, out, in) approximately around the market’s turning point. Not an easy task but not impossible either. Moreover, the timing need not be exact, just close enough to avoid most of the pain and enjoy most of the profits.
No positions in stocks mentioned.
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