Thirty Second Course on Asset Allocation
Instead, I’d come armed with just one chart and force my erstwhile pupil to spend the entire half-minute staring at it.
That chart is below, a gem from Professor Jeremy Siegel (via Vox):
In the above table, originally pulled from Siegel’s epic Stocks for the Long Run
Now of course, there are caveats – the first is, nobody lives for two hundred years. This is true, which is why the gains of the stock market from the entire period are not important ($1 turned into $704,000, in case you were wondering).
The second caveat is that, prior to the 1970′s and the advent of the index fund at Wells Fargo, nobody could have done anything quite so simple as buy the stock market passively. As such, these historical returns would have been unattainable, even if the numbers themselves are reality as represented by the indexes.
But to those caveats, the reasonable person says “So what? Just because I’m not going to live for centuries or because my grandparents could not have owned an index fund, what does that have to do with my own future and the next thirty years?”
Thirty seconds doesn’t offer us a lot of time for nuance and there are certainly other issues that should be brought to the fore in a discussion about portfolio management and risk. But if that were all I had, this chart would be all I’d need to make the most important point a younger investor needs to be armed with, the earlier the better.
Source:
Only 24% of the US knows where to put their money (Vox)
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