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
-=-=-==-=-=-=-== -=-=-=-=-=-=-=-=-=-=-=-

---

Stock Analysis

I receive emails from Morningstar. This company provides statistics and... Read More

Big Buildings Can Mean Big Economic Disaster

AS BUILDERS BEGIN WORK ON THE FREEDOM TOWER in New... Read More

365/7/24

What does it take to be a stock trader? It... Read More

Why Is The Macedonian Stock Exchange Unsuccessful?

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

Stocks Options Trading

Let's assume that you want to make some serious money... Read More

Cash

How many people went to a cash position this week?... Read More

Cash Is A Position

I go to the Money Show every year to visit... Read More

Buy Low - Sell High

Now where have I heard that before? I know. It... Read More

No Load Mutual Funds or Exchange Traded Funds (ETFs)?

If you are fed up with early redemption charges and... Read More

Dividends

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

Patterns

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

Dont Lose All Your Money

That sounds like good advice doesn't it? Don't lose all... Read More

Mutual Fund Ball and Chain

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

Stocks: Understand What You Buy!

"There is nothing more frightful than ignorance in action!" Johann... Read More

The Bottom?

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

Valuation

Every day I hear from the "experts" on CNBC-TV and... Read More

The Stock Market - How Just One Question Will Tell You All You Need To Know About Your Stock Broker

Last time we looked at the real performance of the... Read More

Investing Basics - Stocks, Mutual Funds, Real Estate & Online Investing

Have you ever thought of investing? Do you have a... Read More

Stock Chart Reading

As an investor you will want to check out any... Read More

Prosperity

It has fallen upon the consumer to make our economy... Read More

A Triple Dipper: How to Make 3 Profits on 1 Stock Trade

This is a rather simple strategy with which I am... Read More

Different Ways of Buying Stocks

Let's say you are interested in this one company. You... Read More

Emotional Involvement

I'll bet with almost anyone that has stocks or mutual... Read More

Mutual Fund Expense Lies

When purchasing mutual funds we are cautioned to read the... Read More

Commoditizing the world

Let's discuss commodities; with the latest Enron situation, it is... Read More

Lemmings Are Gathering

Before they go over the cliff to their destruction these... Read More

Trading vs Investing

I often hear from people, "I don't trade. I invest.... Read More

Living Trust Investing: Income Considerations when the Grantor Dies

A common problem I often see when working with living... Read More

Mutual Funds: The Modern Den of Thieves!

Mutual funds were created with the idea that one person... Read More

How Commodity Trading Differs from Stock Trading

There are major differences between trading stocks and trading futures.... Read More

Small-Cap Stocks: The Beginning of the Journey

When an individual investor wants to roll up his sleeves... Read More

Why Stock Is More Risky Than Options!

You probably have been told that options are risky. Even... Read More

A Personal Stock Market Investment Philosophy

∙ Make every investment in the stock market a long-term... Read More