Stocks for the Long Run?

>> Used to be there was no more reliable investing truth than this, in the long run stocks will do better than safer investments like bonds. The principle had history behind it overall 20 year periods measured stocks outperformed bonds 90% of the time. Well, they all know what happened. Thanks to this bear market bonds had been the better bet over the past 20 years and the idea that stocks always win if you wait long enough has gone the way of other seemingly immutable laws of finance like that real estate can't go down. So where were the flaws, well first the principle focused too much on the probability of losing and not enough on how much you might lose. Professor Svy Body assumed spelling of Boston University a longtime skeptic pointed out that if stocks were such a sure thing in the long run then the cost of insuring a stock portfolio would go down the longer you held them, in fact, it doesn't because over time the magnitude of a potential loss goes up. Example, if stocks lag bonds by 2 percentage points for a year it's no big deal. If they underperform by 2 points a year for 20 years as they've done their return comes to only half that of bonds, half. Second, in the long run the risk of disaster goes up not down; this may be a once in a generation bear market we're in but if you invest for 20 years the chances of seeing a once in a generation event are high. Ironically the risk now is you might get too negative about stocks and after a downturn like this the outlook for the next 20 years is more positive so don't give up on stocks. But clearly you have to keep some money in cash and bonds more as you get older. You now know that in the investing world even supposedly sure things aren't so sure.

Music

==== Transcribed by Automatic Sync Technologies ====