Long term stock market risk

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staythecourse
Posts: 6993
Joined: Mon Jan 03, 2011 8:40 am

Re: Long term stock market risk

Post by staythecourse »

pkcrafter wrote:You say stocks are not risky in the long run, but does your data suggest they are risky in the short term? If so, what do you consider short term? Your data shows that 80% of the time the 80/20 outperforms and when it doesn't there is only <20% of the time it underperforms more than the 50/50 portfolio. That makes it sound like even at 5 years an 80/20 portfolio isn't all that risky.
Just to be sure I was clear using the 5 year rolling data as an example: the 80/20 portfolio outperformed 80%+ of the time and the 20% it didn't the worst underpeformance was <20% of what the balanced portfolio produced.

You do ask an excellent question of what is short term. Since financial reporting is MOSTLY done on a cotinuous basis during the trading day and often published year to year (Jan. 1st to Dec. 31) I would say that is likely the definition of what folks consider volatility/ risk. As many authors and studies have shown based on turnover numbers in portfolio holdings 1 year is not surprising as considered the defining line of short to long term. Remember the VAST majority of money in the market are not Bogleheads so this rapid buying and selling is not surprising. The financial industry gets their bonuses once a year so it is not surprising that the motivation is to make sure you chase returns EACH year vs. not caring if you go through a couple of years of drought because you can see the light at the end of the tunnel several years down the road. This the reason I think the individual investor is at a HUGE advantage over professional money.

Again, I am not saying folks should be heavy in equities just stating the data after is crunched. There are MANY reasons for not being heavy in stocks (short time horizon, unstable job, need of liquidity, low EF or high monthly liabilities, etc...) My point is the thought stocks are risky is not true "most" of the time. What is true is they are VOLATILE as anyone looking at yearly returns would agree.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle
Verde
Posts: 349
Joined: Mon Dec 31, 2007 3:47 am
Location: South Africa

Re: Long term stock market risk

Post by Verde »

Thanks Assumer, that was very helpful.
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