How much can you make in stocks? Realistic Expectations (ICMA Retirement Corporation)

Charts of the Week

Capital Markets Review (As of 9/30/2015)

Chart of the Week for October 2, 2015 - October 8, 2015

Capital market returns were generally negative in the third quarter of 2015, with the exception of U.S. Bonds which had slightly positive returns as U.S interest rates fell during the quarter. Over the trailing 1-year period, U.S. Bonds and U.S. Small-Cap Stocks provided positive returns while International Developed Market Stocks, Emerging Market Stocks, U.S Large-Cap Stocks, and U.S. High Yield Bonds all had negative returns. Over the trailing 5-year period, all asset classes shown except Emerging Market Stocks had positive returns, with U.S. Large- and Small-Cap Stocks outperforming the other asset classes shown.

While U.S. economic reports were generally positive for the third quarter, the negative returns for the asset classes shown above can be related to several factors including market volatility, concerns over economic conditions in China, and U.S. interest rate policy. Emerging Market Stocks was the worst performer in U.S. dollar terms, losing 17.90%. U.S. Small-Cap Stocks lost 11.92%, International Developed Market Stocks lost 10.23%, U.S. Large-Cap Stocks lost 6.44%, and U.S. High Yield Bonds lost 4.86%. U.S. Bonds was the only asset class with positive returns noted on the chart for the quarter, wtih a return of 1.23%.

In the chart above:

• U.S. Bonds are represented by the Barclays U.S. Aggregate Bond Index.
• U.S. High Yield Bonds are represented by the Barclays U.S. Corporate High Yield Index.
• U.S. Large-Cap Stocks are represented by the S&P 500 Index.
• U.S. Small-Cap Stocks are represented by the Russell 2000 Index.
• International Developed Market Stocks are represented by the MSCI EAFE (Net) Index.
• Emerging Market Stocks are represented by the MSCI Emerging Markets (Net) Index.

Safeguard Your Retirement (Motley Fool) - don't be tempted to chase hi risk investments

The Motley Fool

Don't Make This Life-Changing Mistake

http://www.fool.com/retirement/general/2009/05/01/dont-make-this-life-changing-mistake.aspx

Dan Caplinger
May 1, 2009

With the economy struggling, promises of financial security look especially attractive right now. But now more than ever, you have to look at such promises with a skeptical eye -- before you make an irreversible mistake that could ruin the rest of your life.

Unfortunately, it isn't too hard to find disreputable professionals who are willing to go to great lengths to take advantage of people's lack of financial expertise. Although the Bernie Madoff Ponzi scheme case is an extreme example, less dramatic situations can cause just as much damage to unsuspecting investors.

Unreasonable expectations
One common way that unscrupulous advisors trick people is by using numbers that are simply too good to be true. For instance, the Financial Industry Regulatory Authority (FINRA) recently imposed a fine of over $7 million on Morgan Stanley (NYSE: MS). FINRA alleged that Morgan Stanley brokers in upstate New York targeted workers at Xerox (NYSE: XRX) and Eastman Kodak (NYSE: EK), recommending that they take early retirement and allegedly promising safe annual returns of 10% or more to finance living expense withdrawals that wouldn't require them to dip into principal. Of course, when the bear market came, they lost huge amounts of their life savings.

You might wonder how someone might get duped into believing that they could count on double-digit returns with no risk. Historically, going after such high returns would generally force you to put almost all your money into stocks -- something that's far riskier than most new retirees would ever want to do.

Desperate times, desperate measures
Yet to understand how someone could get tricked like this, consider the lack of investing background that many people have. If you're a long-time worker at a company that has a traditional pension plan, you may never have had to manage your retirement savings at all. Yet you might be tempted by the opportunity to take a lump-sum withdrawal at retirement -- especially with incentives for workers to take early retirement packages, such as severance payments or other perks to sweeten the deal.

And with big employers like General Motors (NYSE: GM) and Ford (NYSE: F) struggling to survive a tough auto market, you can imagine that their workers wouldn't need much enticement to take an early-retirement package. Those workers would be especially vulnerable to puffed-up claims from financial advisors, especially if those claims allowed workers to do what they already believed was their best option in a bad situation.

Protect yourself
The majority of financial professionals do their best for their clients. But given the rash of abuses lately, you won't offend anyone by taking some steps to verify any advice you get from an advisor. Here are some things to keep in mind:

* Watch out for historical returns. Because the stock market as a whole has performed so badly even when you look back 10 years or more, you're likely to see return projections that are either based on longer periods or taken from certain periods. If you see an optimistic return projection on an investment, make sure you find out how it has performed during the bear market -- and in the years preceding it.
* Know your time horizon. To invest in stocks, you should expect to hold onto your shares for a relatively long time -- 5-10 years is a good range -- before you need the money. If you expect to use it before that, you shouldn't invest in stocks, even if they might give you better returns. You can't afford the risk of an ill-timed downturn.
* Don't swing for the fences. As a new retiree, the lump-sum payment you just got may be the last money you ever get from your former employer. So if you're considering individual stocks with part of that money, you should stick with relatively conservative companies like Microsoft (Nasdaq: MSFT) and Johnson & Johnson (NYSE: JNJ). Don't bet your life savings on a stock tip, no matter how attractive it may sound.

Plenty of intelligent people have been taken advantage of by convincing pitches from people who turned out to be crooks. If you're careful, though, you don't have to become the next victim.


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Stocks - some realistic expectations (WSJ Opinion Page)

MARCH 30, 2009

How Long Until Stocks Bounce Back?
Even the best-case scenarios will require years.

By PETER J. TANOUS
Investors have breathed a world-wide sigh of relief in the waning weeks of March as equity markets have shown signs of upward vigor. The question now being bruited around the financial centers of the world is: Have we hit bottom?

No one really knows, but that is likely the wrong question. More important to investors than the date we hit bottom is how long the recovery will take. How long will it take for investors to recoup the losses they suffered since October 2007, when the S&P 500 index reached a record high of 1565? Here's a clue: It will take longer than you think. Let me explain.

Let's assume that we have already seen the market bottom and that it occurred on March 9, 2009, when the S&P 500 sank to 676. A return to the lofty level of 1565 reached 18 months earlier requires a stock market gain of 131%. How much time might that take? What if it took five years? I can hear the cries already: "Five years? To recoup the losses we sustained in only 18 months? That's terrible!"

We should be so lucky. You see, if we were to get back to the old high in five years, that would suggest an annual return of over 18% for that five year period. There are few periods in stock market history when the market rose 18% for five years. The last such period was in the late 1990s at the tail end of the Internet boom, which was followed by three years of consecutive stock market declines in 2000, 2001 and 2002. Given the history, a five-year recovery period, far from being terrible, is probably wishful thinking.

More realistically, what if, starting now, we began a munificent period of rising stock prices over a multiyear period of, say, 11% a year? If that happened, it would take eight years to get back to the October 2007 highs. To put all this in historical perspective, the average annual return for the S&P 500 over the past 83 years, since 1926, has been 9.7%. If the market rose at that historic rate, it would take more than nine years to get back to the October 2007 highs.

What is the lesson from these sobering statistics? The recovery in stock prices is likely to take much longer than we had hoped, and investors should taper their expectations accordingly. Raising the risk level of your investments to accelerate gains will set you up for even greater losses if your risky investments don't work out. Instead, allocate your assets wisely and be mindful of the risks in the different asset classes you choose.

The good news is that stocks will recover. It just may take longer than we expect.

Mr. Tanous is president and CEO of Lynx Investment Advisory LLC in Washington, D.C. He is the author of many books including "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen" (Threshold Editions, 2008), co-authored with Arthur Laffer and Stephen Moore.