History says stick with stocks

11:30 AM History, stick, stocks No Comments

| By Kathy Kristof, Kiplinger personal finance magazine

For 87 years, large companies have shares investors earned an annualised 10%.

When I look at my portfolio "Practical investing", I see a handful of great picks: catchy bargains that were later discovered by Wall Street. Of course, I keep a few dogs. But the most important reason that my portfolio has increased 29% in 19 months, I was fortunate to put a bunch of money in the stock market at the right time.

In October 2011, when I made the first investment in this portfolio, I was unusually flush with cash. I had sold just my home of 20 years and reaped the reward that a conservative donor many gains from the sale of real estate: a huge return on the capital.

A House can be an effective savings plan, at least for those of us every month to pay a little more in the direction of the mortgage and only rarely borrow from growing equity. The House won the value of around 60% (without conversion projects). But the work an appreciation rate, which roughly followed the rate of inflation.

Yet if a few thousand dollars a month even a slowly growing investments in casting (and this is not that hard, if you can live in the system), it amazing how fast to expands your nest egg. $2,000 Per month to invest, and only 3% to earn and you have almost $660,000 in 20 years. Although a good portion of your mortgage is payment to pay interest. But working the lever effect, also because the House appreciation on the total value not only your equity. So, if your home value as much as the rises cost of the loan after tax, you end ahead.

This can be a compelling opportunity later in life if you no longer need a big house with a child-friendly yard. It is a privileged opportunity even better since Uncle Sam, you can exclude up to $250,000 of profit per person ($500,000 per couple) tax. But I digress.

Since I was so for a handful of money in October 2011. As predictably, I used some of the money into a new home. But at a time when many investors were afraid of stocks, I was looking forward, money in the market to pump. Why? For the same reason that I moved money out of U.S. stocks in 1999: I was expecting a so-called reversion to the mean.

Simply put, at the age of 87 that the Morningstars Ibbotson has tracked unit market history, large companies have returned nearly 10% annualised shares. Each year watches market rarely in exactly 10%. But longer route-typically ten or twenty-an annualised 10% is about the average (or "middle") return you should expect from the stock exchange.

But in the two decades period that ended in 1999, the market again almost twice the long-term average-17, 9% annualized. Simple math told me that earn almost twice the market after two decades of historical return, bad times would come. And of course, they did.

Fast forward to the end of 2011. At this point, the market return over the previous ten years was a windy 1.4% annually. This was one of the lowest 10-year records and suggested that we are for a period of unusually good returns in could be.

This is already correctly so far, and I not only remain optimistic that, because the subsequent ten-year bond yields remain relatively low. Many large companies sell potential still at reasonable price-earnings ratios relative to their growth, and they are full bar. That money offers to set the wherewithal companies retooling and quickly, if the economy takes steam, should stimulate the rising earnings and stock prices.

Of course, nothing is certain: in life or on the market. But from my point of view you have to not be, that a genius, solid earn in today's market are. You only need to be invested.