There’s a good reason why regulators require financial firms to include, when mentioning the past returns or ratings of a mutual fund, the warning: “Past performance is not a guarantee of future results.”
The warning is true. History is an imperfect guide to the future, or historians would be fabulously wealthy investment sages.
But history does seem, if not to repeat, to rhyme from time to time. Read more »
My recent comments about the performance of retirement accounts elicited a wave of comments from Vanguard investors about poor stock market returns. Here are a few thoughts in response.
I was at a garden party recently, on a beautiful Sunday afternoon in September, where talk centered around the economy, politics, favorite movies, and the latest in electronic gadgets. Yet one conversation that struck a particular chord with me was the “case for China.”
You’ve heard it repeated in various forms. The Chinese economy is booming, while the developed economies are in a funk. Chinese infrastructure is gleaming and new, while U.S. infrastructure is falling apart. Output from the Chinese economy will soon exceed U.S. output, signaling the end of American influence and prominence in the world. The argument is actually much broader and about emerging markets in general. The emerging economies are ascending, and the U.S. and other rich countries are washed up.
In the past, I have expressed frustration with the financial press’s coverage of investment topics (Clearing the air on target date performance), and I’ve also blogged about how I feel investors are best served by ignoring financial pundits (Listening to the markets—not the pundits).
But occasionally, a fleeting glimpse of a longer-term, clearer reality is visible beneath the smoke and ashes of the “financial catastrophe of the week” featured in the headlines. It’s worth pointing it out when it happens—such as in the article Mixed emotions on our anniversary, which ran in the September 11 edition of the Wall Street Journal. The article offered a real-life example of what a long-term investment strategy can mean for an employee who makes a biweekly contribution of $250 to their 401(k) and gets a $125 employer match.
When the stock market sells off, as it did in late July and early August, there is an inevitable surge in commentary on the riskiness of U.S. retirement accounts. The main worry is that retirement investors are taking on too much risk and that retirement assets should be invested in “safer” securities or programs.
From my perspective, many such criticisms seem unduly focused on the short run.
