Many advisory firms talk about their array of tools and resources. Every firm that is worth talking to
has them. The difference, however, is what the advisor does with them. Do they have the insight to use
them properly? How well do they apply them to help you? ACG’s insights may help provide a sense of
our ability to help you achieve success, as you define that term.
“Most kitchens have the same spices in the spice rack. That does not mean everyone is a good cook.”
– anonymous
The stock market has been new breaking record highs for nearly a year now, and stocks are high-priced by some traditional historical measures, such as trailing 12-month earnings. With some pundits saying stock market risk is high, this is a good time to note how investors have been compensated for taking the extra risk of investing in stocks instead of parking cash in a so-called riskless asset like 90-day Treasury bills.
Stocks, as measured by the Standard & Poor’s 500, in the 20 years ended June 30th, 2021, averaged an 8.61% annual return, compared to the meager 1.26% annual return on a the risk-free 90-day U.S Treasury Bill.
Since the T- Bill is backed by the full faith and credit of the U.S. Government, it is considered a riskless investment -- while the value of stocks is subject to ups and downs and, in theory, your entire investment could be lost in stocks. Subtracting the return on T- Bills from the return on stocks, the resulting 7.35% is the premium paid for taking the risk of owning U.S. stocks over the 20-year period. To be clear, investing in America’s 500 largest publicly-held companies earned investors an average of 7.35% more annually than a risk-free investment.
This 20-year period encompassed three frightening bear markets -- the tech stock crash of 2002, the financial crisis of 2008, and the Covid downturn of early 2020. Past performance is no guarantee of your future results and that, paradoxically, is precisely why investors are paid a premium for owning stocks. Yes, stocks are risky and that’s why they have had a higher return than guaranteed investments throughout history.
This website uses cookies for navigation, content delivery and other functions. By using our website you agree that we can place cookies on your device. I understand