Trading Tips No 2: The Big Lie in the Stock Market

It is commonly reported that the stock market averages about 10% per year return over the long term (decades). So the investor that buys and holds a diversified portfolio of stocks or mutual funds is led to believe that their portfolio will grow by 10% per year on average. You know the mantra, “Not to worry, I’m a long term investor. On average, I’m earning 10% per year.”

There is only one problem here. The facts, as you will see in a moment, state otherwise.

Let’s assume for a moment that an investor could match the stock market average return of 10% per year (not likely, by the way, as most professionals fall short of this goal). Further assume the market averages 10% per year over a four year period:

Year - Ac Size - YR Return - Av Return - Av Return

0 $100,000

1 $ 80,000 -20% -20% -20%

2 $ 72,000 -10% -15% -14%

3 $ 93,000 +30% 0% -2%

4 $131,040 +40% 10% +7%

From the above example, you can see that our investor who managed to match the stock market performance year by year finished with an average portfolio return of only 7%, not 10%. Underperforming the stock market averages will always be the case, no matter what market period is selected - past, present, or future. So, can you expect to average 10% a year in a diversified portfolio of stocks and mutual funds (that you buy and hold) in a market that averages 10% per year? The answer is clearly, “No!”

This is one reason for considering alternative investments for a portion of your portfolio, such as a good trading system that provides superior returns in non-correlated markets.

-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-
If you would like to learn about the stock market and
you have a computer and a burning desire to seize
success, then you have what it takes to personally
unearth Bill’s Astonishing, step by step trading secrets
…BUT ONLY FOR A LIMITED TIME.

http://www.instantprofitstoday.org
-=-=-==-=-=-=-== -=-=-=-=-=-=-=-=-=-=-=-

---

The Stock Market Doesnt Care if You are a Beginner?. Get Prepared to Succeed at Trading

Stock trading remains a very competitive field and the stock... Read More

Wal-Mart: Discount Store, Discounted Stock?

As GuruFocus updates the stock buys and sells of gurus,... Read More

True Investment Road Maps

If you don't know where you are going any road... Read More

On Line Stock Trading: Small Cap & Micro Stocks Go Up and Down - How Can You Profit?

Success in small cap & micro cap stock trading like... Read More

Emotional Maturity

If you are going to be a winner in the... Read More

The Bottom?

Every day I hear someone on CNBC proclaim that "this... Read More

The Stock Market Investor?s Worst Enemy

Every stock market investor faces one primal enemy. An enemy... Read More

Peer Groups

Whenever I see mutual fund comparisons in the trade publications... Read More

What To Buy Now

I am sure that if you have a brokerage account... Read More

Does Japan Matter?

For the last 12 years we have seen the Japanese... Read More

Economists

In today's volatile and confusing stock markets everyone is searching... Read More

Understanding the Bulls and the Bears

If you've ever flipped on the television to CNN Financial... Read More

Why Technical Indicators

The fight continues to rage among traders who use technical... Read More

Why Is The Macedonian Stock Exchange Unsuccessful?

The Macedonian Stock Exchange (MSE) is not operating successfully. True,... Read More

Managing Investing and Stock Market Risks

Reduce your investing and stock market risks by:Setting your sights... Read More

Mutual Fund Honor Roll ? Buy High, Sell Low by Chasing Performance

Buy high and sell low -- It's not a typo.Millions... Read More

Stock and Fund Dividends

When is a dividend not a dividend?The latest thing "conservative"... Read More

Investing in Dividend Paying Stocks

I was recently interviewed for a press release through a... Read More

Forces that Move Stock Prices

Among the largest forces that affect stock prices are inflation,... Read More

Patterns

The Law of Chaos is the theory of random unpredictable... Read More

Successful Trading ? Taking Profits - Part 2

Suppose your position has made a big move and you... Read More

Nest Eggs and Omelets

Do you have a nest egg? You know, a place... Read More

The I Word is Coming to a Town Near You

Hello Inflation, it has been awhile, I see you on... Read More

The Shadow

The Shadow knows. There used to be a radio program... Read More

Social Insecurity

Just about everything you have been told about Social Security... Read More

Trading Stocks ?Never Forget About A Past Trade

We all know that emotions control every decision that an... Read More

How to Evaluate Load vs. No Load Mutual Funds

If you have been dealing with mutual funds for any... Read More

Trading Systems

To become a successful trader you must have some kind... Read More

Buy and Hold: How to Perpetuate Your Investment Losses

A recent cartoon in my daily newspaper showed two guys... Read More

Mutual Fund Ball and Chain

The broker told me not to sell because the mutual... Read More

Selection Vs Direction

As I have said many times before in this column... Read More

Precision Money Management

This article describes the model of a natural relationship between... Read More

Invest, Be Wrong, and Make Money in the Stock Market

I have been trading for several decades and was an... Read More