Home Fixed interest The Good, the Bad and the Dubious Chronicle by Gary Silverman

The Good, the Bad and the Dubious Chronicle by Gary Silverman


We are at an interesting crossroads when it comes to investment. Depending on who you are, you could be in a very good place or in a very questionable place. Let’s look at the right place first.

For whatever reason, you’ve been investing for 10, 20, or 30 years. While you might not have invested all of your money in stocks (smart move), you have invested a significant portion of your portfolio in stocks.

It was maybe 30% or 50% or even a lot, a lot more. The rest was in bonds and the like.

Your portfolio has performed remarkably well. Stocks may have taken a vacation a few times (hard to ignore two 50% losses in the first decade of the millennium), but since you’ve owned them you’ve seen a really good comeback.

Even your bonds have performed well as interest rates have fallen over the same period.

Congratulate yourself. As I said, you have come to the “right place” to invest. Whether by skill or luck, your wallet is set for the next decade, whether it’s a “good” or a worse one.

But let’s say you are in this dodgy place. You haven’t had much, if any, exposure to stocks in the past ten or three years. You missed a lot of growth.

If you had money in bonds or other fixed income instruments, you may have had a few seasons of good interest rates, but nothing compared to the growth of stocks.

You are in a bit of trouble. You could (finally) jump on the bandwagon, but with all the mileage driven, the wagon could lose a wheel at any point. And in your case, you won’t return a little of the gains you have enjoyed, you will be sitting on real losses.

Staying in bonds and the like puts you in a pretty bleak interest rate future. You almost have to hope that the Federal Reserve messes up and loses control of inflation, thus pushing up interest rates.

Otherwise, you are fighting a losing battle because government bonds are already priced to give negative real return (interest minus inflation) and most corporate bonds don’t do much better.

This is the same situation that new investors are eagerly awaiting. High stock prices and low interest rates don’t position you for many excess returns over the next several years. It can happen, but don’t count on it.

Now that you’re depressed, let me pick you up a bit. If you have a long time horizon ahead of you, then if the next cycle begins in the downward direction, you have time for future highs to balance everything out.

People approaching retirement have hopefully a few decades ahead of them, so that applies to them as well.

Just be careful not to plan for immediate stellar returns (a good thing to remember for all investors). Polls show that the average person thinks stock returns will on average exceed 15% each year.

Long-term averages being closer to 10%. And these are just averages. From 2000 to 2010, the total return was close to zero.

Plan realistically rather than hopefully.

Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.


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