Why Invest Forever? (Part 4)

Key Points

  • Although the worst-case outcomes for the investing in the S&P 500® Index seem uninviting, the index has provided reasonable returns the vast majority of the time.
  • The worst-case 5-year holding period for the index produced an annualized real return of -13.233%; however, over 80% of the time the 5-year holding period produced a positive real (inflation-adjusted) return.
  • Further, the worst-case 45-year holding period for the index produced an annualized real return of only about 3.5%; however, 90% of the time the 45-year holding period produced a solid annualized real return of close to 5% or better.

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Why Invest Forever? (Part 3)

Key Points

  • Since 1973 the S&P 500® Index has posted considerable gains—over this period the index has averaged over 10% per year in gains after reinvesting dividends, before taxes and fees.
  • However, investigating other 45-year periods (going as far back as 1871) leads to a more useful picture of the index’s performance across differing economic environments.
  • According to history, it’s better to invest in the index over longer periods in order to increase the likelihood of providing favorable returns and decrease the likelihood of losing money.

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Risk Management 101 (Part 3)

Key Points

  • A histogram can be used to visually interrogate the distribution of a security’s returns.
  • These returns typically resemble a bell-shaped curve when viewed as a histogram.
  • A random variable that follows this type of bell-shaped distribution is said to follow a normal distribution.
  • There are certain characteristics of a normal distribution that can be helpful when investigating the returns of stocks, given an understanding of the assumptions involved in such analysis.
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Passive is the New Aggressive (Part 7)

Key Points

  • Research suggests that less than one percent of professional active manages are “skilled” at what they do.
  • Given this, the odds of picking a solid active manager is not just slightly worse than a coin toss; in fact, the chances are closer to slim to none.
  • Therefore, a passive investing strategy may be more sensible over the long run for most investors.

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Passive is the New Aggressive (Part 6)

Key Points

  • Over long periods, a passive investing approach in index funds is more likely to lead to an outcome that falls in line with a given benchmark.
  • With an active investing approach, where mutual fund fees are higher, outcomes are far less certain.
  • As such, the long-term opportunity cost of an active approach can be significant, and perhaps even disastrous.

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