8% annual stock market returns... when will they return?

[LeeH]

Every retirement planner I come across uses 8% as the average return for money invested in the stock market. Apply some compounding at that rate and anyone who put a few thousand in the stock market before age 30 will retire a millionaire.

But... seems like the stock market is stuck in a range. When will we get back to that 8% average annual returns... or will we?

[john70t]

How about RE? A chunk of gold or land or something solid follows the current price. Bernanke said he'll raise intrest rates soon.
Better than trading sea shells/rice/metal goods.

[pwd72s]

Originally posted by LeeH
Every retirement planner I come across uses 8% as the average return for money invested in the stock market. Apply some compounding at that rate and anyone who put a few thousand in the stock market before age 30 will retire a millionaire.

But... seems like the stock market is stuck in a range. When will we get back to that 8% average annual returns... or will we?

Ahhh, these planners fail to tell you about how many years it took to compile this "average". Bottom line should be to assume equity risk when you are young, then begin sliding into treasuries as you age. Right now? Cindy & I both having been here near 6 decades, she below 60, me above? We're 40-60...40 equities, 60 bonds. The equity market? If somebody were 25, I'd say go crazy, go all in...but as you age, as you understand more about tolerance of risk, begin backing off to the guaranteed side. The older you get, the less you want to be caught in "temporary" market downturns, because these downturns can last a decade, or more...

[jyl]

Well, the bearish argument would be that over the long run, stock market returns should equal GDP growth, GDP is basically population x productivity, US population is growing at appx 1%/yr, so can productivity increase 7%/yr? Assuming long-term inflation of 1-2%/yr, that means real productivity has to grow 5%/yr. Even during the productivity boom of the late 1990s/early 2000s, I'm not sure it grew that much. Go down this path and you start thinking about long-term US stock market returns of 3-5%/yr. Might make you want to shift investments to emerging markets . . . India and China looking better?

[Moneyguy1]

Bottom line?

It will be a while.

For the time being, be cautious and wait for the occasional opportunities.

[RoninLB]

average 3% above inflation is growth in assets acceptable to big money players. The stock mkt is a skitzo animal to time. Current noise is worldwide with a fear perception of inflation and commodity price unknowns. The Fed Chair has no leadership history to base financial decisions on creating uncertainty. One things for sure is that the world is in a growth period all together. The hot money action has been curtailed due to Japan's central bank's new policy with all the other CBs following suit.

You're either an optimist or a pessimist on how the US economy will perform. This should be the consideration on where you invest confortably.

US mkts and players are the best anywhere imo.

[Hugh R]

I'm going with cash and heading towards CD's with 5.4% right now with about 10-20% of my portfolio.

[Nathans_Dad]

8% is the average market return over its history. That does not equal 8% per year. Some years the market is down, some years it grows 15%. The key is to put your money in and leave it. Market timing doesn't work. If someone knew how to predict market moves they would be a bazillionaire by now. The guys who make real money in the market (like Buffett or Lynch) all buy stock in excellent companies and leave it there.

The danger of market timing is that you miss days like yesterday where the market surged almost 2% in one day....

That being said, the idea above is correct. When you are younger you should take more risky investments because you have the time to weather the short term ups and downs. As you age you should move your assets into more conservative vehicles like bonds, etc. I plan to be at least 60% equities until age 55 or so and then begin slowly converting into income investments.

[turbo6bar]

The advantage of missing days like yesterday is you missed out on the two past months of declines.

High-yield savings accounts are pushing 5% and higher, now. In the short-medium term, investments in equities will present moderate risk with nominal potential for gains.

Wait for the tailwinds, and then find a portfolio that matches your risk profile. When things become less clouded, I will give serious consideration to the Royce family of mutual funds and picks by Al Frank of The Prudent Speculator. Both have superb long-term track records.

[lendaddy]

I've got most of my money in leather, I keep the coins in a glass jar.

[competentone]

Originally posted by Nathans_Dad
The guys who make real money in the market (like Buffett or Lynch) all buy stock in excellent companies and leave it there.

The guys who make real money in the market also never invest in "the stock market" -- their investment focus is on specific companies that trade in the market.

[competentone]

Originally posted by turbo6bar
High-yield savings accounts are pushing 5% and higher, now.

Adjust that for inflation (even using the government's "scam" numbers) and you're making virtually nothing.

[techweenie]

Anyone here with $50K to invest -- who wants 8% for 12 months, drop me a PM.

It's a loan that is convertible to stock in a company I did a business plan for. The updside is pretty spectacular. Qualified investors can get a prospectus after signing an NDA.

[turbo6bar]

Originally posted by competentone
Adjust that for inflation (even using the government's "scam" numbers) and you're making virtually nothing.

Sometimes making money is all about preserving what you've got. It's not my fault central banks print too much money.

[jyl]

Originally posted by Nathans_Dad
The danger of market timing is that you miss days like yesterday where the market surged almost 2% in one day....

Days like yesterday are short-covering rallies in a bear market, draws in new suckers to grind down.

All this tea-leaf reading over tiny changes in Bernanke's comments (which is what triggered the rally from oversold conditions) is a big circle-jerk. Core inflation now running at annualized 3%, well above Fed comfort range. Fed will continue raising rates until economic growth slows enough to bring inflation down. That slowing growth process is going to be painful, and if it goes to negative growth (recession) it'll be worse. Consensus earnings estimates have just started to decline. Still nearer the beginning than the end.

[Nathans_Dad]

You guys are all falling into the market timing trap. You assume that you would have gotten out at the top of the market and waited to buy until the bottom. Very rarely do people get lucky enough to do that. In fact, human nature is to hold on to your stocks or funds when the market is doing well and then get nervous and sell at the bottom.

So, the more realistic scenario would be you bought your stocks or funds 3-4 months ago when the market was rising and you felt safe, then got nervous when the market tumbled and sold, then missed the rally yesterday and bought in because you thought this was the turnaround and now you are fretting because the market is down a bit today.

Market timing works great in retrospect. Wish I could invest in retrospect.

[pwd72s]

Originally posted by Hugh R
I'm going with cash and heading towards CD's with 5.4% right now with about 10-20% of my portfolio.

John, No need for me to know your tax brackets, but you may want to research treasury issues. Sometimes, in States with high income taxes, like California and Oregon, the true (in your pocket after taxes) yield of treasuries is higher than CD's, because the interest paid on treasuries is exempt from State taxation, by law. It takes some numbers crunching on your part, but it MAY be worth looking into.

[turbo6bar]

it's called discipline. Few are born with it. It takes practice. I won't let another bubble catch me with my pants down. I'll take subpar gains for a while to avoid losses, but that's just me. Everybody is different.

And, in case you were wondering, I sold my equities in Sept 05. In October, I thought I was a genius, but subsequent months made me look like a fool. However, the stocks and mutual funds are riding lower NOW than in Sept 05. In the meantime, my cash has been treading water at 4-6%. I am dabbling in homebuilder put options, which have done well, but I will readily admit this is just play money and nothing serious. Like I said, everybody is different. As long as I reach the goals within my risk tolerance, I feel successful.

[motion]

LOL, you guys crack me up. Wasting your time on stocks and bonds. Spoons, I'm telling ya, spoons is where its at!

[sammyg2]

8% return? I hope my stock investments never get down that low. I like it when they double every year or two.