When I look at my "Practical Investing" portfolio, I see a
handful of great picks: counterintuitive bargains that were later
discovered by Wall Street. Of course, I hold a few dogs, too. But
the biggest reason my portfolio soared 29% in 19 months is that I
had the good fortune to put a bunch of cash into the stock market
at the right time.
In October 2011, when I made the
first investments for this portfolio
, I was uncharacteristically flush with cash. I had just sold my
home of 20 years and reaped the reward that many a conservative
spender gains on the sale of real estate: a huge return of
A home can be an effective savings plan, at least for those of
us who pay a little extra toward the mortgage each month and rarely
borrow from the growing equity. The house also gained in value, by
some 60% (exclusive of remodeling projects). But that works out to
an appreciation rate that roughly tracks the rate of inflation.
Still, if you pour a few thousand dollars a month into even a
slow-growing investment (and this is not that difficult when you
can live in the investment), it's amazing how rapidly your nest egg
expands. Invest $2,000 monthly and earn just 3% and you'll have
nearly $660,000 in 20 years. Admittedly, a good portion of your
mortgage payment goes to pay interest. But the leverage works for
you, too, because the home's appreciation is based on the total
value, not just your equity. Thus, if your home's value rises as
much as the after-tax cost of the loan, you end up ahead.
That can be a compelling opportunity later in life, when you no
longer need a big house with a kid-friendly yard. Better yet, it's
a tax-favored opportunity because Uncle Sam lets you exclude up to
$250,000 of the gain per person ($500,000 per couple) from tax. But
So there I was with a fistful of cash in October 2011.
Predictably, I put some of the money into a new home. But at a time
when many investors were scared of stocks, I was eager to pour
money into the market. Why? For the same reason that I pulled money
out of U.S. stocks in 1999: I expected a so-called reversion to the
Simply put, in the 87 years that Morningstar's Ibbotson unit has
tracked market history, big-company stocks have returned just under
10% annualized. In any given year, the market rarely clocks in at
precisely 10%. But over longer stretches--typically a decade or
two--an annualized 10% is roughly the average (or "mean") return
you should expect from the stock market.
But in the two-decade period that ended in 1999, the market
returned nearly twice the long-term average--17.9% annualized.
Simple math told me that after two decades of earning nearly twice
the market's historical return, bad times were coming. And, of
course, they did.
The Lost Decade
Fast-forward to late 2011. At that point, the market's return
over the previous ten years was a piddling 1.4% annualized. That
was one of the lowest ten-year records ever and suggested that we
could be in for a period of unusually good returns.
That has been true so far, and I remain optimistic, not just
because the trailing ten-year returns remain relatively low. Many
great companies still sell at reasonable price-earnings ratios
relative to their growth potential, and they are awash in cash.
That cash gives businesses the wherewithal to retool and hire
quickly when the economy picks up steam, which should spur rising
earnings and stock prices.
Of course, nothing is certain--in life or in the market. But in
my view, you don't have to be a genius to earn solid returns in
today's market. You just need to be invested.
Kathy Kristof is author of the book Investing 101. You can see
her portfolio at