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Physician Investing: The Current Market Aftershock

You've heard the term "The Lost Decade in Stocks" which refers to the period from 2000-2009 when the US stock market had a negative rate of return. Many investors have simply given up on stocks, but long periods of negative returns have happened before.

Watch this excellent video from David Booth of Dimensional Fund Advisors. He goes through the past several decades of stock returns to put this in perspective:

There are several big points to take away from this:

  1. There can be long stretches of time when stocks perform poorly but that does not predict future returns.
  2. Long term discipline really means LONG TERM. That does not mean next month or next year. It means your entire investing lifetime.
  3. Just when things look the worst is when the expected future returns of stocks is the highest but it's not guaranteed.
  4. Returns after you take into account inflation matter a lot more.
  5. A well diversified portfolio avoids investing in just one asset class since no one knows which asset class will experience a "lost decade" next.

In my opinion this long term discipline is the biggest value an investment advisor provides to you--as long as the advisor acts in your best interest and charges reasonable fees.

Reader Comments (1)

Again, a great post. In my opinion long term investment provides another method of diversifying you portfolio. We typically think of diversification as different investment vehicles-stocks, bonds, rentals, etc. The whole reason to diversify is to smooth out your investment returns. Another way to do this is by investing long term-even though the year to year returns vary, the long term returns are rather predictable. If you look at any 30 year period after WWII you will find that the S&P 500 beats inflation and then some in almost every slice of time. This is why it's important to start investing early, even if it's what seems like a nominal amount

Mar 17 | Unregistered CommenterMehul Sheth

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