The Total Return Roller Coaster

07-Jul-2011

I like this.

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Doug Short, advisor perspectives,

Here’s an interesting set of charts that will especially resonate with those of us who follow economic and market cycles.

Imagine that ten years ago you invested $10,000 in the S&P 500. How much would it be worth today, with dividends reinvested but adjusted for inflation?

Brace yourself: The purchasing power of your investment has shrunk to $9,851, a rather disappointing annualized real return of -0.15%.

 

 

 

Had I posed the same question in March 2009, the answer would have been a depressing $5,521. The -5.93% real return would have cut the purchasing power of your initial investment nearly in half.

The Fun Runs of the Roller Coaster

Now let’s imagine that we time-travel back to September 2000 and pose the same question. Your ten-year inflation-adjusted gain would have been $49,683 — up 396% for an annualized real return of 16.13%. As the chart illustrates, investment performance with a 10-year timeline has been a real roller coaster as far back as we have data.

If we extend our investment horizon to 20 years, the roller coaster is less volatile with higher lows and lower highs.

 

 

The volatility decreases further with a 30-year timeline. But even for that three-decade investment, the annualized returns since the 1901 have ranged from slightly less than 2% to over 11%.

 

 

As these charts illustrate, and as many households have discovered over the past few years, investing in equities carries risk. Households approaching retirement should understand this risk and make rational decisions about diversification. They should also consider fixed income alternatives for that part of the nest egg that will pay non-discretionary expenses not covered by Social Security and pensions.

 

 


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