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

 


Visitors: 447

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

(381)

Article Source:


 
Rate this Article: 
 
Online Stock Market Trading For Beginners - Learn The Stock Market
Rated 4 / 5
based on 5 votes
ArticleSlash

Related Articles:

Stock Market Trading - 3 Easy Tips to Trade Price Breakouts in the Stock Market

by: Ian C Jackson (August 12, 2008) 
(Investing/Stocks)

Day Market Online Stock Trading - 4 Little Secrets The Big Boys Won't Tell You

by: Felix Gould (March 09, 2008) 
(Investing/Stocks)

The Big Question For Stock Market Investment Beginners - Does Paper Trading ..

by: Roger Overanout (July 17, 2007) 
(Finance/Stocks Mutual Funds)

Day Trading Stock Picks The Best Way to Start Trading the Penny Stock Market

by: Chris Braff (July 28, 2008) 
(Investing/Day Trading)

10 Proven Tips for Stock Market Trading

by: Mark Crisp (July 01, 2007) 
(Investing)

Stock Market and Stock Trading Factors or How to get Success in Stock Trading

by: Prabhat Kumar (July 10, 2007) 
(Finance/Stocks Mutual Funds)

Stock Market Trading Styles Scalping, Momentum Trading, Swing Trading and Trend .

by: Arkaitz Arteaga (July 10, 2008) 
(Investing/Stocks)

Trading Tips No 8: Picking the Best Stock Market Price

by: Bill Poulos (May 13, 2005) 
(Finance/Stocks Mutual Funds)

Stock Market Trading Tip - 4 Tips To Get You Into Profit

by: Felix Gould (March 09, 2008) 
(Investing/Stocks)

Online Stock Market Trading For Beginners - Learn The Stock Market

by: Nate Damm (April 25, 2008) 
(Investing/Stocks)