The Next Decade Will Likely Foil Most Financial Plans


While the majority of analysis is based on the idea that individuals should “buy and hold” indexed based portfolios, reality has been far different.

With retirement plans having a finite time span for both accumulation and distribution of assets, the time lost in “getting back to even” following a major market correction is the primary consideration.

The chart below picks up on the investor psychology chart first shown above. The chart below illustrates the difference between expectations and reality. The illustration shows the difference between the inflation-adjusted return on a $100,000 investment in the S&P 500  growing at 8% annually as opposed to the impact of gains and losses in market returns over time. The reason the chart begins in 1990, despite analysis showing 120-year investment returns, is that covers almost all investors in the markets currently. 

(Click on image to enlarge)

Decade Foil Financial Plans, The Next Decade Will Likely Foil Most Financial Plans

Unfortunately, most investors remain woefully behind their promised financial plans. Given current valuations and the ongoing impact of “emotional decision making,” the outcome is not likely going to improve over the next decade, or possibly two.


Markets are not cheap by any measure. If earnings growth fails to grow sharply, interest rates rise, not to mention the impact of demographic trends, the bull market thesis will collapse as “expectations” collide with “reality.”

Such is not a dire prediction of doom and gloom, nor is it a “bearish” forecast. It is just a function of how the “math works over time.”

For investors, understanding potential returns from any given valuation point is crucial when considering putting their “savings” at risk. Risk is an important concept as it is a function of “loss.” 

The more risk that is taken within a portfolio, the greater the destruction of capital will be when reversions occur.

This time is “not different.” The only difference will be what triggers the next valuation reversion and when it eventually occurs. Two bear markets taught many this lesson. Currently, there is a whole generation of investors who will have to learn this lesson the hard way.

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