worth more than $1.7 million by the end of 2010. By comparison, someone who invested the same amounts in Treasury bills at the same times would have had slightly less than $394,000. Myth: Even if long-term returns are higher for stocks, they still aren’t high enough to justify the risk of short term losses. Reality: It’s true that stocks have historically been more volatile than bonds or Treasury bills but stocks have also provided greater rewards than bonds and Treasury bills over the long term. Total returns on the S&P 500 have been positive in 61 of the past 85 years—or approximately 72% of the time. There have only been 11 years in which the market lost more than 10%, and only six years when it lost more than 20%. On the other hand, returns have been greater than 10% in 49 of the past 85 years, and greater than 20% in 32 of those years. Myth: Stocks may have beaten bonds and treasury bills over the long run, but that’s only because the stock market has had a few great years. There have been many periods of time when stocks have underperformed bonds and treasury bills. Reality: In 38 of the past 65 years—or about 58% of the time— the S&P 500 has produced higher returns than Treasury bills or long-term government debt. Over longer periods, the results have been even more lop-sided: from 1945 through 2010, stocks outperformed Treasury bills and long-term government debt in 42 of 61 rolling five-year periods—almost 69% of the time. Over rolling 10-year periods, stocks outperformed more than 80% of the time, and stocks have outperformed Treasury bills and longterm government debt in all but two rolling 20-year periods since 1945. Conclusion Of course, we all know that past performance is no guarantee of future results. There have been lengthy periods—such as the late 1970s—when US stocks delivered relatively poor risk-adjusted performance. Investors may be able to improve long-term results, and reduce volatility, by including fixed income, foreign equities and other asset classes in a diversified portfolio. Still, the moral of the story should be clear: investors who act in haste—fleeing the stock market when the going gets rough— are likely to repent at leisure. The real risk investors face isn’t just the possibility of further market volatility, but also the damage that could result from making sudden or rash changes in their long-term investment strategies—changes they may regret later. Matthew E. O’Donnell is a Financial Advisor located in Chicago, IL, and may be reached at (312) 917-7464 or http://fa.smithbarney.com/matthew_odonnell. Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
© 2010 Morgan Stanley Smith Barney LLC. Member SIPC.
the
top
list .........................................
the top 10
good things about going
no.
10
You’ll finally have time during social studies class to sit and scrape the manure out from under your fingernails.
no.
9
Algebra is a piece of cake, compared to all the chores you had to do with your steers.... and lambs.... and pigs all summer.
no.
8
You plan to make this year’s science fair project based around balancing a feed ration.
no.
7
Study hall is a great opportunity to doodle out a sketch of the perfect show calf or logo for your farm.
no.
6
You’ve got some great stuff to record in your FFA record books - can anyone say, “Governor’s Auction”!
no.
5
You have to be a student in good standing to qualify for the Cattlemen’s Association scholarship for college next year.
no.
4
Even though you begged your mom to home-school you, it’ll be nice to see your school-year friends again.
no.
3
Cross country, soccer, football, volleyball, golf, cheerleading, or marching band.
no.
2
You’re really going to work on that perfect-attendance record this year - oh, who are we kidding?
...and the number 1 reason your missed your class: no.
1
as a senior, you finally have the right to cut to the front of the lunch line!
Do you think you have our next top 10 List?
E-mail your list to carrie@theshowcircuit.com, and if it is selected to be in our magazine, we’ll send you a $10 iTunes gift card! All submissions are subject to editing for length or content, and may be used in part or in whole.
September/October 2011 • theshowcircuit.com
255