For example, if you bought US shares in 1929, it would have taken 28 years – until 1957 – before you got back all your investment. Other markets have taken even longer.
It is true that stocks earn 10 per cent against 3 per cent for bonds – in the long-run. But that can be very long.
Here is my perspective.
If you buy shares now, when it has dropped 50% and it takes 28 years to reach its previous peak (i.e. 100% gain from the current price), the effective yield is 2.5% per annum. If it takes a shorter time to reach the previous peak, the yield will be higher than 2.5% per annum.
Mr. Tan,
ReplyDeleteWhich Dr Money article published that statement? I tried to find it online but it isn't there. Thanks.
Provided you buy at the bottom. But you can never know the bottom.
ReplyDeleteIt may drop another 50% or less and it may take 5 to 10 years to recover to the price you bought at.
Then for 5 to 10 years, it is 0 % return.
This scenario not possible?
The returns for the next 28 years are likely to be higher than 2.5%. This is because the dividend yields of lots of stocks are already much higher than 2.5%.
ReplyDeleteThis is not a guarantee, but it's certainly a good bet to buy equities now.
To play safe, try to average down the cost. Do not dump all your money in one go as you never know whether the market will go up or down. So if you buy in 1929 at the peak but average down subsequently when the market clash, your waiting time could be very much shorter to recover your loss. And also do not put all your money in one stock or one sector, otherwise it could be the journey of no return.
ReplyDeleteNever average down for stocks especially for a bad trade. You wil suffer greater loss.
ReplyDeleteAnonymous on Jan 11, 3.14 pm: The link to the article is here.
ReplyDeleteIn this bearish market condition, it is safer to stick to blue chips and well-managed companies with good fundamentals, sound financial position and good track record.
In my opinion, now and the coming 6 months should present very good opportunity to invest in equities. By equities, I mean only companies with good (and accountable) track records and companies with low borrowings or with very rich owner(s).
ReplyDeleteIn practice, we can't wait for market to form bottom because no one really know when and where the bottom will form. As the saying: "... when the market forms bottom, no one rings the bell... (because no one knew it)".
Now is one of the best time to invest but if you have no idea which bluechips to invest due to any reasons, one way is to be brave and keep buying 1,000 shares of STI-ETF every 30 to 60 days periodically for year 2009 (if your family income after CPF, tax, and expenses allow for this).
You'll end up becoming shareholders in a number of very well managed and profitable Singapore companies and expect stream of good dividend payout from your ETF. When you think your ETF had increased substantially in the future then you can consider selling it one by one and enjoy the tax-free capital gain.
If you're concern what happen if the ETF's prices keep droping? Then tell yourself that you are lending your savings to the bosses of these great companies and the bosses promised to pay you (although) an unspecific amount of dividend every six months as compensation to you for leaving your money there. Plus, you can expect to get "Hong Pow" (I mean tax-free capital gain) by selling some of the ETF shares when most people is very optimistic again (few years later).
Note: By "bosses", I mean the shareholders of these companies, and don't worry, theorectically you already know one of the bosses.
One of the bosses is you yourself (because you're one of the shareholders too). :p
*** Please take note that I maybe wrong for my opinion regarding year 2009's market outlook and you should make your own judgement before deciding whether or not to invest. I am not able to guarantee anyone any performance of investment return.
In many occasions, most people (including those in or near to retirement ages) should consider to save most if not all of their money in licensed banks, Goverment Securities like Government Bills/Notes/Bonds or money market fund only. Contact your financial planner and talk to your family members for advices and listen to their valuable opinions.