Trading Tips No 2: The Big Lie in the Stock Market

It is commonly reported that the stock market averages about 10% per year return over the long term (decades). So the investor that buys and holds a diversified portfolio of stocks or mutual funds is led to believe that their portfolio will grow by 10% per year on average. You know the mantra, “Not to worry, I’m a long term investor.
On average, I’m earning 10% per year.”There is only one problem here. The facts, as you will see in a moment, state otherwise.

Let’s assume for a moment that an investor could match the stock market average return of 10% per year (not likely, by the way, as most professionals fall short of this goal). Further assume the market averages 10% per year over a four year period:
Year - Ac Size - YR Return - Av Return - Av Return0 $100,0001 $ 80,000 -20% -20% -20%2 $ 72,000 -10% -15% -14%3 $ 93,000 +30% 0% -2%4 $131,040 +40% 10% +7%
From the above example, you can see that our investor who managed to match the stock market performance year by year finished with an average portfolio return of only 7%, not 10%. Underperforming the stock market averages will always be the case, no matter what market period is selected - past, present, or future.
So, can you expect to average 10% a year in a diversified portfolio of stocks and mutual funds (that you buy and hold) in a market that averages 10% per year? The answer is clearly, “No!”This is one reason for considering alternative investments for a portion of your portfolio, such as a good trading system that provides superior returns in non-correlated markets.-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-If you would like to learn about the stock market and you have a computer and a burning desire to seizesuccess, then you have what it takes to personallyunearth Bill’s Astonishing, step by step trading secrets …BUT ONLY FOR A LIMITED TIME.http://www.instantprofitstoday.org-=-=-==-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-

Bill Poulos