Equities till Old Age Do us Part
Invest in equities, they said; make lots of money, they said. Look at you now, with pennies in your pockets: no treasure trove there. Might as well shoot dice... Here’s the thing: the stock market can be quite unhomely to those that jump into it for a quick dip. Those who stick to it for at least two decades can fare better, but are they necessarily safer? The truth is that you’ve got to be willing to get your noodle in gear if you want to make some cash. After all, there’s no such thing as money for nothing (unless you’re Mark Knopfler or the Federal Reserve). Not to say that it’s rocket science; in a perfect world, a stock’s price tag should reflect what a company’s expected future earnings are. Expected, as in what we think; not what we know. Who knows, North Korea could misguide a missile onto Acme Corporation’s factory tomorrow and by that destroy the company’s main stream of revenue; its operations. This is why we take risk into the equation when valuating stocks. Those that are up for this challenge may consider that history has rewarded those who have stuck in there for the long haul. How true is this? The US’s equity market is the ideal lab rat because it has proven to give some of the highest returns and the lowest spread (read: risk) over the last century, corrected for its currency’s loss of value over the years (i.e. inflation). In other words, it was one of the “safer” places to put your money. Mind you, safe is to many a mixture of returns that surpass inflation, and low volatility, rather than just the latter. If we put the last century’s performance under the microscope, we can play around so as to see what would have happened if you invested anywhere from 10 years strait to 103 years (behold, the cards that were dealt to us for this inquiry). We find that if you did in fact hold stock for 20 years or more, you would