[quote]Flagpole wrote:
Well, my "buy and hold" strategy (which isn't exactly that) has done me well since 1989. I've still made over 10% annually as an average, and that's enough to build serious money. Even the 2000s have been good to me...starting off bad early on, but then 43% gain in 2003, 20+% gain in 2004, 2005, 2006, 8.7% gain in 2007, 39% LOSS in 2008, 34.7% GAIN in 2009, and so far in 2010 I'm up 9.4%. With very little effort on my part, my investments are making decent returns. Why invest another way that takes way more time and effort and statistically doesn't do as well? I will invest in individual stocks for fun once my house is paid off (while still putting money in retirement accounts and staying completely debt free), but as my main source of wealth building? Nah.
[quote]flip side wrote:
Flagpole, one point regarding this...you are not up 10% in your portfolio (even though it has average 10% return per year). Here is why...
Let's assume by starting off badly in the early 2000s you mean down 20% each year in 2000, 2001 and 2002. If you started off with $10k at the begining of 2000 that would mean it is worth $7,290 at the end of 2002.
In 2003 you had a gain 43%, that puts your holdings back to $10,424.70.
Between 2004 and 2006 you had 20% gains, that means at the end of 2006 your portfolio was worth $18k.
In 2007 you had a gain of 8.7% you portfolio is worth $19,581.09
In 2008, you had a loss of 39% making your portfolio worth $11,944.46
In 2009, you had a gain of almost 35% making your portfolio woth $16,089.19
In 2010, you have a YTD gain of almost 10% (let's assume that is the gain for the full year), your portfolio will be worth $17,601.58
That's a gain of $7,601.58 of 10-years or approximately 7.6% per year. When you present value that over 10-years the gain is only 5%. Still VERY good in a time period when the market actually lost money, but definetly not 10% on average.
It's important to understand how compounding and present value work when calculating your returns.