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The Long-Term Prospects for Stocks: Game Over?

This article was written by in Investing. 21 comments.

For as long as I’ve been paying attention, which admittedly is only the last ten or so years of my total thirty-four, personal finance experts have been extolling stocks as the best long-term investments. Over long periods of time they provide more growth than any other type of investment like bonds, with an expected rate of return of 8%, 10%, or 12%, depending on whom you ask.

This has been consoling advice, because with these returns, investing in stocks is the only way most people will hope to build a moderate amount of wealth for enjoying retirement. That’s not to say there aren’t other paths. Starting a successful business, winning the lottery, and inheriting a fortune are often cited as methods of building wealth but the reality is most people will not make those achievements, and those who do have a strong probability of losing the wealth quicker than expected.

After the recession, the idea that investing in the stock market will be profitable in the long run is a tough sell. Those selling the idea the loudest are often people in the industry — they make money when people invest. For example, Money Magazine asked Roger Ibbotson whether investing in stocks now — or ever again — is a good idea. That’s like asking the Dan Akerson, the incoming CEO of General Motors, whether it’s a good time to buy a car. (Hint: he’ll say it is.)

In the 20th century, stocks in the United States had a number of positive influences:

  • the meteoric expansion of the economy,
  • the emergence of the United States as the primary world power, and
  • the gradual increase in public involvement in the stock market.

These could be the greatest factors in the stock market’s proven ability to provide high returns. These advantages have all run out, however. With the expansion of the economy, labor in the United States is now expensive relative to countries with emerging economies. There’s only one direction the most powerful country can move when it eventually does. And while there is still some room for more Americans to enter the stock market, involvement seems to be saturated. Investing in the stock market was once the realm of the privileged, but now just about anyone can trade as often as they like with the help of discount brokers.

I’m still betting on stocks for the long-term, but I’ll be ready to accept returns less than what the personal finance experts have traditionally promised. I’m also not sitting around, accepting paltry cost of living salary increases each year. I’m saving as much as possible for the future — while still enjoying some of my present. What’s your approach, and do you think stocks are past their prime?

Published or updated August 23, 2010.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 21 comments… read them below or add one }

avatar 1 Anonymous

Buy a Rolex (they last forever and never need batteries) . . . and short the hell out of stocks, make money on the way down . . .

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avatar 2 Anonymous

Like you, I’m sticking with stocks. I like investing in the American business person. And that is, in effect, what you’re doing when you put money in stocks. It’s not some soul-less asset. It’s a CEO, Management, and a bunch of hard working people. My point is that I have faith in American business. Labor may be cheaper elsewhere, but this is still the best place to live, start a business, and thrive.

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avatar 3 Anonymous

If the U.S. is on its way down economically, there is still a planet full of other countries with growing economies to invest in and you can invest in American companies that sell overseas. I have definitely shifted my investments internationally, to about 40% of my portfolio.

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avatar 4 Anonymous

The UK was on its way down last century, but it still posted solid stock returns. Not being the world’s sole economic superpower anymore in no way implies lower stock returns going forward. That said, it’s definitely wise to diversify internationally. You never know.

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avatar 5 Anonymous

I’m not sticking with stocks – it’s going to take forever to recover and I just don’t have that kind of time or money.

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avatar 6 Anonymous

Wrc, that’s up to you. You might be right, but it’s a big bet. I’d rather just be out of stocks
if they’re overvalued. No guarantee that the stocks you short are going to be the ones to go

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avatar 7 Anonymous

“…investing in stocks is the only way most people will hope to build a moderate amount of wealth for enjoying retirement.”

I’m following a different route. Firstly I’m living frugally which is allowing me to save on average 60% of my gross earnings. I’m then invested across equities from the US, UK, Europe ex UK, Japan, Australia and the Emerging Markets. I then target an overweight equities position when my valuation metrics suggest an under valued market and vice versa. I also hold some property, gold, cash and bonds.

Boring I know but seems to be working well so far in a bear market that’s been running since 2000. Of course only time will tell if it continues to work.

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avatar 8 Anonymous

No stocks are not past their prime. Stocks in good companies will grow over the long run.

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avatar 9 Anonymous

I completely write stocks off to zero, yet i still contribute in my 401K. Seriously, 100% of my 401K, company stock, options are all worth ZERO in my net worth calculation. If it’s there, it’s there. If not, it doesn’t matter.

Don’t rely on stocks for retirement. You’ll be happy you did, b/c it’ll only be upside!



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avatar 10 Luke Landes

So what do you invest in other than stocks that makes up your recorded retirement account balance?

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avatar 11 Anonymous

Well, I have been about 95-98% cash since June 2008 (before the crash). I am only 2-5% in long term OTM puts – insurance that will buoy the cash. If inflation hits my mortgage becomes really cheap; if deflation hits my cash is worth more.

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avatar 12 Anonymous

With Sam, I assume it’s his usual mantra of cash. Stocks can and should be part of your asset allocation.

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avatar 13 Anonymous

Is this the death of equities?


Think the gist of your post is really about should you be investing in stocks from the US (which many are multi-national anyways) or from other countries (including emerging markets). Like many who invest too much their own company’s stock (via stock options and such) many bet too much in the USA.

Also, with my overall buy-n-hold MPT (modern portfolio theory), I’m decided to set aside a small portion of my portfolio (sub 10%) to take some riskier actively managed bets. The bets will be small. If I’m wrong they do not really affect my overall return, but if I’m right can potentially have a big payout.

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avatar 14 Anonymous

I’m shorting stock market. High unemployement will stay. Expenses only raise. US economy will stagnate.

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avatar 15 Anonymous

Keep your stocks, but make sure you invest 35% or more in international markets. Get some emerging market exposure if you don’t already have it. Add small caps and small allocations in more volatile sectors, like energy and materials, over time.

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avatar 16 Anonymous

Did i read your post correctly that 100 % of the stock options that you have in your 401k are worth zero, or did u mean that that your 401k is 100% invested in stock options in the company that you work for and are currently worth zero?
If its the latter, then you need to start investing future funds in something else like an index fund or target date fund . If the former, and its only 10% or less of the total, well then that’s not great , but not a disaster either.

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avatar 17 Anonymous

I think 60% stocks ( a mix of us, small medium, large cap and some international, and some natural resource, and some REIT ) and 40% mix of bonds ( high yield, high grade, tips, cd and cash) still makes sense. One could always hunker down in fear like a crazed survivalist, predicting all sorts of doom and gloom, but sheesh, is that anyway to live?

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avatar 18 Anonymous

Can also be a Life time prospects for Stock

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avatar 19 Anonymous

I trade all the time, my pile is now slightly better higher than when the dow was at 14k.

Buffet called it for everyone to hear, when people are in fear, be greedy. The money i made was on the worst days in the market when I sat down to sell everything, bought remembering buffet’s words, I bought instead. Those are the stocks that brought me back. Take a profit when you get one, don’t be afraid to get back in, and sell out if you go down 10% like IBD says, that prevents a monster 50% loss.

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avatar 20 Anonymous

I’m definitely a buyer of stocks, now and into the foreseeable future.

I focus on dividend growth investing, so regardless of what the stock market does, as long as my companies remain healthy, my passive income increases each year. Plus I buy on value, so I hope to build significant capital appreciation as well.

Going global is a good idea too. Many US bluechips have 30, 40, 50 or 60% of their revenue coming from other countries, and ADRs can be purchased for entirely global companies, as well as ETFs, etc.

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avatar 21 Ceecee

I like stocks with good, solid dividends. I try to look at cash flow, not principal.

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