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Wednesday, November 14, 2012

Some Market Returns

Here we go again!  This time it's the "fiscal cliff'' leading the way. Go into a decently populated bar and mention the markets, and you'll surely get a lively group discussion going about how smart people stay out of the markets - smart people buy certificates of deposit or bury their money in the back yard.

Take a look at what we've been through, the loudest voices will say!  Just over the last 10 years, we've had the tail end of the bust, the 9/11 terrorist attack that was predicted to end passenger air transportation, the housing crisis resulting from the housing market going bananas, a financial system that came within hours of going completely bust, and, to boot, Europe falling apart with the ongoing possibility of an end to the Euro.  Oh yeah...I almost forgot - throw in our  dysfunctional government and its never ending 3-ring circus of ineptitude.

Who would invest in this kind of a world?

Before we hyperventilate, maybe we should (gasp!) look at some numbers.  Here are 10-year annualized return results for the 10 -ear period ended 9/30/12 for basic asset classes:

Index                                                              Return
Barclay's U.S.  Aggregate Bond Index             +5.32%
Barclay's Global Aggregate Bond Index           +6.45%
Barclay's U.S. Corporate High Yield Index     +10.98%
JPM EMBI Global Diversified Index               +11.74%
S&P 500 Index                                               +8.01%

Source:  Morningstar

For the uninitiated, these are standard asset classes.  Each, in fact, can easily be invested in via low-cost, well-diversified exchange traded funds.  If you have a decent 401(k) or similar retirement account, you very likely have funds that track these indices available to you.

What I find interesting is that markets have done fairly well, and many don't know it.  There are a lot of people walking around thinking that markets have been a total bust over the past 10 years.  Here's some news:  at 8%/year, your money doubles in 9 years.

Here's some more news:  when markets implode, it represents an opportunity.  Most everyone in the market, including retirees, has money invested that they won't need to touch for at least 10 years.  What they care about is where the market will be 10 years from now.  This simple realization leads smart investors to look at market downturns as opportunities to pick up really good companies at attractive prices.

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