What if the market is flat for 20 years?

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qingdao

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I know historically the markets have been returning an average about 8% per year since they started, i'm not sure of the exact figure. And many people advise to just track the markets and you can't go wrong. But what happens if the market is static for 20 years or so.

If you look at at graph of the DOW Jones for as long as it's been around you can see that from about 1965 to 1980 it remained flat. Most of the growth was from 1935-1960 and from 1980-2000. The S&P 500 was also relatively flat during this period but not as bad as the DJ.

The last few years have had about a zero net gain...from about 2001 to now. Irish market has done better than most. But how do i know if the market will enter a flat period for the next 20 years and that when i come around to retirement age...i havent got any of the investment growth i expected.

has anything changed fundamentally from 30 or 40 years ago? Is it better to buy a basket of shares that are at least showing some growth and hold them long term. (updating this 'basket' as time goes buy - but not trading excessively). I know the question then is how to get the right basket....but is this approach it better than just 'buying the market'?
 
I suppose one of the ways to avoid your retirement being affected in that way is to have a diversified investment portfolio.

Have a certain (large) percentage in equities/market indices, then break this down further into different geographic/industry/growth profile sectors so that you gain exposure to a wide basket of economies, industries, and growth prospects.

Also have some of your portfolio in property, some in bonds, maybe some in cash etc.
 
qingdao said:
I know historically the markets have been returning an average about 8% per year since they started, i'm not sure of the exact figure. And many people advise to just track the markets and you can't go wrong. But what happens if the market is static for 20 years or so.

If you look at at graph of the DOW Jones for as long as it's been around you can see that from about 1965 to 1980 it remained flat. Most of the growth was from 1935-1960 and from 1980-2000. The S&P 500 was also relatively flat during this period but not as bad as the DJ.

The last few years have had about a zero net gain...from about 2001 to now. Irish market has done better than most. But how do i know if the market will enter a flat period for the next 20 years and that when i come around to retirement age...i havent got any of the investment growth i expected.

has anything changed fundamentally from 30 or 40 years ago? Is it better to buy a basket of shares that are at least showing some growth and hold them long term. (updating this 'basket' as time goes buy - but not trading excessively). I know the question then is how to get the right basket....but is this approach it better than just 'buying the market'?
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It is the nature of successful businesses that they grow their profits over time - global markets are opening up, inflation is being kept steady by China, and the prognosis looks good. Sure, there will be some companies that will go nowhere but this is where good quality research comes in. If the overall markets are steady or flat, you just have to find the ones within that that demonstrate high growth. These will always exist.

Alternatively, if your strategy is not buy and hold, you could go for a momentum trading strategy whereby the medium to long term price trend is flat, but within that, there are rolls. Once you get to know a stock intimately, it can be surprisingly easy to predict these rolls.

So my answer to you is not to worry. No matter what the market conditions, there will always be an opportunity to profit.
 
you've heard of the global recessions of the early thirties and the seventies, both driven by prior unprecented booms in personal wealth. The turn of this century has driven the largest personal spending boom ever and US T-bills are just about to go inverted - notice the corporates divesting assets recently in Ireland and beyond, the race to the bottom?

The money made in downturns is primarily by those who seen the light early, divest in time and then reinvest then all others are in panic mode.
 
You're question is a good one and many are predicting flat markets for this timeframe.
 
if your invested in a fund that buys all companies in say Dow,then you will also have dividends from these companies to reinvest and increase the amount you hold without the market as a whole going higher,also investing in a pension gets a significant tax benefit. diversify and invest in proven money managers and quality research.also put money in every month which helps smoothe out short term volatility .many think that large indicies are overvalued on pe ratio basis and that as a result prices wont rise as much over next 15-20 years but i wouldnt be so sure with plenty of new consumers and sales coming online from asia in next 2 decades,but the best thing to do is invest with several good fund managers in funds according to your goals and risk profile.
 
Many leading investors such as Warren buffet etc. have been saying that the main western markets Dow, Footsie etc are way overvaled on P/E and other ratios. The DOW is still at P/E of arond 20 in the 1970s after years of decline the DOW dropped to arond P/E of arond 10. The DOW since 2001 hasn't declined but has merely stagnated this is becase people are still putting money into it simply becase the low interset rates we have had since then means that there is an excess of liquidity in the global economy which means that money is still being invested in DOW companies, even thogh they are not at very attractive levels. The key to what happens next will be determined by inflation and interest rates. When the time comes that interest rates will have to rise alot to control inflation, then the DOW etc will drop. There are other emerging markets arond the world in asia, latin america etc which are probably better bets
 
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