Investing Tools for Investors Looking to Excel
10/21/02  

Time Horizon

Time Horizon relates basically to when you need the money. If you're in your twenties, make a substantial income, and live in the house of your dreams, you can afford to take risks to maximize your returns. Equities have outperformed bonds, which, in turn, have outperformed cash or equivalents (money markets, CD with short maturities, or t-bills).

In the long run, if history is a guide, equities will continue to outperform bonds and cash. However, we have just traversed a period in the 80's and 90's of significant out-performance. Equities have historically produced 10% compounded rates of return, but over the last two decades have produced approximately 15%. If returns regress to the mean performance of 10%,  we might  have to revert to a period of significant underperformance

Some pundits suggest we have entered a new era, have experienced a paradign shift and will experience wonderful returns going forward. Automation, governments newly won over to governmental surplus and efficiency, the Internet, global competition and worldwide overcapacity in many industries, and world peace underscore the new paradigm shift.

Investors need to stay tuned if some of these arguments (which have carried the decade), come unglued or cease to operate. For instance, the confluence of all or some combination of synchronized world economic recovery, a newly recalcitrant China or Russia, Y2K, a renewed crisis in the Mid-East, or an increase in liberal governments who see the government as the solution to all problems, the deficit and capital markets be damned, would spell the end of the good old days

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