In a recent post I spoke about various products that purport to ‘guarantee’ your returns in the stock market … in the current environment, it’s totally understandable that investors would be looking for such guarantees. But, you pay for them …
… instead, I suggested:
You can provide yourself a similar – or better – result at far less cost: buy a low-cost Index Fund and wait 30 years to cash it out; I can virtually ‘guarantee‘ an 8.5% minimum return
Rufus, though, took me to task, citing the Japanese stock market:
Here’s a prediction for you….In about 5 years the NIKKEI index will show you to be completely full of it even at your 30 year timeframe. If you had picked up the NIKKEI 225 in 1990 you’d now be down 75% just on your principal. Fun! If you had picked it up in 1985, you’d be about even today, which is still an absolutely massive loss against inflation. Your entire premise has a market survivor bias built into it to which you are blind. There simply are no guarantees.
Firstly, Rufus is right … there are NO GUARANTEES in life .. especially when it comes to the stock market.
BUT, what I offered was a ‘virtual guarantee’:
It is simply based upon the fact that the past 75 years of the Dow Jones have seen NO 30 year periods (including buying in the day before the biggest stock market crash in history) of returns less than 8.5%.
I’m not sure whether Japan could claim anything remotely approaching the same track record, nor are/were its fundamentals the same as the USA.
From a practical standpoint, I can only tell you this:
1. I invest using history as a guide to setting my benchmarks, but I always buy on value: i.e. do the stocks, RE, businesses look cheap at the moment, and
2. I invest in markets where, if things turn drastically sour, then everybody else is likely to be in the same boat … and, by everybody, that means the whole world.
If I’m going to be peeling potatoes, then so is everybody else … hence my major stock market investments are always in the USA.
Rufus, of course, ONE DAY, there will be a 30 year period where this does not hold true for the USA either, but by then I’ll be learning to speak Mandarin Chinese