<< I ask you the following question: if the real rate of return during 1982-1997 is 12.8%, how low must the Dow Jones fall to reach this number?>>
I must say that I have no idea what you are talking about in this sentence.
The Dow doesn't have to fall at -ALL- to reach a reasonable, sustainable growth rate. Currently growing at 12.8% over the last fifteen years, to slow that growth to 7% means just that--slowed growth--and not negative returns.
Of course, the market could overreact as it often does and drop to even lower returns over the short run. Or it could continue reacting with "irrational exuberance." You just don't know.
What I take issue with is the idea that this current bull market -must- somehow be "paid for" with a future bear market (like it's some unwritten law). The market does not run on some kind of yin-yang predictable cycle.
Good luck with your money market. I must warn you however, that market-timing the stock market may be detrimental to your future purchasing power. Stocks have had vastly superior returns to bonds, money markets, cash, gold, and just about everything else for the last nearly 200 years. Assuming, of course, you are investing for the long-term.
Are you aware that the real return on stocks bought at the 1929 peak after 30 years of holding had easily outperformed on an annualized basis every other investment vehicle during that time period, including those "safe" treasury bonds?
Are you aware that buying a fund encompassing that "horribly overvalued" Nifty Fifty in the 1970's would've gotten you returns almost as good (.5% less) a return as the S&P 500 and, of course, vastly superior to bonds, money markets, etc. etc.?
Jeremy Siegel puts out a book called "Stocks for the Long Run" that has some absolutely fascinating statistics on the subject. I recommend it highly.
Andrew |
