"Market returns are much more volatile than most people
realize, even over periods as long as 20 years."
That's what investment manager Ed Easterling of Crestmount
Research revealed in a recent New York Times article. This may
alarm you, because it directly contradicts what we hear from most
Wall Street "experts."
It also echoes what I've been saying for years: buying and
holding a basket of stocks isn't always a great investment. At
times, it can be a terrible investment.
To prove this fact, Easterling produced one of the most
interesting infographics I've seen about the benefits, or lack
thereof, of long-term investing… a detailed chart of an
investor's average annual return dependent solely on when an
investor first entered and exited the market. His calculation
accounts for taxes and inflation - something you almost never
The illustration is based on the Standard and Poor's 500-stock
index for the U.S. and goes back to before the Great
Mr. Easterling was incited to create the chart after furiously
debating with a client about whether investors should expect to
achieve long-term average returns in the future.
Polls by three major research organizations - the University
of Michigan's Survey Research Center, as well as UBS and Gallup -
all found that investors are strikingly bullish. Most individual
investor predicted that the stock market would return about 10
percent a year over the next 10 to 20 years - or about 7 percent
But research tells us historical averages can vary greatly
an investor is in the market.
For instance, the New York Times article notes that "
After accounting for dividends, inflation, taxes and fees,
$10,000 invested at the end of 1961 would have shrunk to $6,600
by 1981. From the end of 1979 to 1999, $10,000 would have grown
Mr. Easterling felt that choosing a single date was arbitrary
which is why he created a compelling infographic to visually
present the data. His detailed chart shows annualized returns in
the S&P 500 based on thousands of possible combinations of
market entry and exit (
click here to view the infographic
After looking at his chart, it's clear that stocks have
underperformed for long periods of time. In fact, wealth creation
is directly tied to the time in which you were invested.
So, is Mr. Easterling's chart the beginning of the end for the
financial industry? Not by a long shot.
Investors are at mercy of the market gods when it comes to
long-term investing, but that doesn't mean that we should avoid
investing all together.
There are many ways to combat the unpredictable fate of
investment returns. My favorite way is through a conservative
options investing strategy known as covered calls.
Today, you can boost the yields of the market's safest,
shareholder-friendly, blue-chip, dividend-paying stocks like
Intel and Microsoft.
In fact, I will be discussing exactly how to generate this
income in an upcoming webinar titled,
"Covered Calls 101: With MSFT and INTC."
In the presentation I will give you my step-by-step approach
on how I increase my income on
while simultaneously lowering my risk.
Let's not fall prey to Mr. Easterling's findings on long-term
investing. Yes, Mr. Market will ultimately control our fate the
returns of our holdings, but he left out the power of selling
options to increase the returns of your overall portfolio.
I hope you won't allow yourself the same fate.
If you would like to take a closer look at Mr. Easterling's