A Long-Term Perspective,Dow Jones Industrial Average
From Dorsey Wright & Associates:
A long-term perspective of the Dow Jones Industrial Average since 1896 reveals the reality that there are extended periods of time in which the US equity market will trend generally upwards, and also lengthy periods of time where the market will instead stagnate or move generally lower. There have been eight such alternating cycles since 1896, with each averaging 14 years in duration. Let’s say an individual begins to accumulate meaningful wealth with which to invest around the age of 40, and has a life expectancy of about 85 years, he or she will likely experience three of these cycles during their investment lifespan. The biggest question, then, is will an individual see two bull markets and only one bear market, or will that individual be faced with two bear markets and only one bull market during their investment lifespan. Where an individual gets on the “investment train” can have a tremendous impact on portfolio returns overtime; however, even an individual fortunate enough to see two bull markets needs gameplan to navigate a 14 year stretch of a bear market. It is important to have at one’s disposal strategies that are effective in both generally rising (bull) markets and falling (bear, or “fair”) markets.
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Equities are a strong trend today, and perhaps will remain so for a long time to come. But we know that the only “normal” in this business is that such things change, and our clients pay for us to manage that change for them when it occurs.