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Strategies & Market Trends : Bear!
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To: Steve Joyce who wrote (12)4/27/1998 1:08:00 AM
From: Alex Greenland  Read Replies (4) of 271
 
Yes but mutual fund inflows would have to increase at the same rate as the markets for increases in the market to continue. Assuming that X billion of inflows creates Y billion of valuation increase, and Z is total market valuation:
N=year #
z(n) = Z(n-1)+Y and X remains constant therefore Y is constant and
Y=.1(Z(1))
As N gets larger the difference between z(n) and z(n-1) becomes less and less...
If this would happen would the average investor still put money in when his returns get smaller and smaller every year?

If one supposes that X gets larger every year but at less of a rate than Z one would still get a diminishing rate of return.

This is all theory and numbers but is something to keep in mind... a lot of new investors may decrease their investments if their rate of return drops with any significance. Also what will happen if after a major one day drop the market bounces back but then continues to fall and investors actually LOSE money for the year?

Alex G.

ps. sorry for all the formulas, its finals time and being an engineering student.....
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