What Can You Expect?

Regular readers know that I have very particular views about how and when to invest in the stock market. I don't rant or rave about them but try to get you, dear reader, to consider these views and to do your own research and to come up with your own views about probable returns and investment (not speculative) merit.

Pierre du Plessis of Investment Postcards from Capetown has recently written an excellent article on starting valuations and probable returns that I think is a must read for all investors. The entire article can be found here. But for a sneak peak as to what can be expected from investments in the S&P 500 at these levels, I give you this chart:




The chart gives the expected RANGE of returns given starting valuation of the market. Low starting valuations (low price to earnings ratios) are at the left. High valuations are at the right. The chart has a definite downward skew from left to right and shows that NEGATIVE RETURNS are quite possible some time ten years forward from any starting valuation over 12! What does du Plessis calculate as the present starting valuation? 20.3! Read the entire article. I leave you to conclude whether a buy and hold allocation to the general market makes sense at these levels FOR YOU. Yesterday's dyed eggs may be a more pleasant experience.