To stay the course on any long-term investment plan, it is vital to understand the role that markets play in setting the prices of our stocks, bonds, and real assets.
A market can be a stock exchange, a housing market, or your local farmers market. They all provide us with the prices we need to make decisions on what is best for us.
The financial markets may seem like a rollercoaster to some, but not to those that understand how markets work to reward the disciplined, long-term investor.
Our strategy starts with simply understanding how markets work, and why we think more than any other strategy they give us the best chances to meet our clients' financial goals.
Investing in the Markets
Despite popular belief, the financial markets are not meant to make you rich. Rather, they serve as a mechanism for companies to raise the money necessary to drive business growth.
But, they serve a vital function in making our economy work which often leads to generous rewards for those that participate in them.
When compared to what an investor can expect in savings (Treasury Bills) or bonds, even the declines in the market seem inconsequential for those with a long-term view.
The markets gives us tools to allow us to structure portfolios that give us the best chance to outpace inflation and taxes - allowing us to keep more of our hard earned savings and diversifying our risks.
1) Long-term Rewards. Monthly growth of $1, 1926-2014 in US dollars. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is no guarantee of future results. US Small Cap Index is the CRSP 6–10 Index; US Large Cap Index is the S&P 500 Index; Long-Term Government Bonds Index is 20-year US government bonds; Treasury Bills are One-Month US Treasury bills; Inflation is the Consumer Price Index. CRSP data provided by the Center for Research in Security Prices, The S&P data are provided by Standard & Poor’s Index Services Group. University of Chicago. Bonds, T-bills, and inflation data © Stocks, Bonds, Bills, and Inflation Yearbook™, Ibbotson Associates, Chicago (annually updated work by Roger G. Ibbotson and Rex A. Sinquefield).