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John Power, in a follow-up post, writes:

TMFPixy wrote:

//For the 10-year period ending 12/31/82 the S&P 500 total return averaged 6.7% per year.//

Sorry to be so think headed here, but are you using "total return" to mean capital gain + distributions? (i.e. If I put $10,000 into the S&P 500, had all capital gain distributions and dividends reinvested, at the end of "the 10-year period ending 12/31/82" I would have: Total = $10,000*(1+0.067)^10 = $19,127, right?)

If so then I thank you for the education! I always thought stocks outperformed bonds in any 10 year period.

I remember discussing a series of articles here (back in February) that claimed the best (defined as maximum returns) retirement asset allocation was a 100% stock portfolio. The articles had some detailed tables comparing the 100% stock strategy with modern portfolio theory's strategy of a mixed basket of stocks and bonds -- starting in 1968 I think. Do you think that Lynch's observation has any relevance to the analysis done in these articles?

I reply:

Yes, total return does mean the reinvestment of capital gains and dividends, and $10K invested in the S&P 500 at the beginning of that decade would have grown to $19.1K. And it's true when you're looking at broad market indices, stocks can lag behind government bonds as they did in that decade. It doesn't happen often, but it does happen. As I recall, in all rolling 10-year periods since 1926 stocks win 93% of the time, but lose 7%. It's even higher since 1946.

I don't remember the February discussion and am too lazy to look it up. <g> As to the relevance of Lynch's observations, it depends. Check out the series of messages and the analysis I did in the Retired Ralph Redux portfolios during that same decade. Here's a link to the 20-some-odd messages under the topic Retiree Portfolios in this folder: . You'll see that the Foolish Four didn't do half-bad in that decade. Indices paint a general picture, but unless that's what you invest in, then they don't paint the specific portrait. Therefore, the observations are relevant only insofar as that's how you invest.


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