It’s the year 2022 (September).
Collingwood has won 3 premierships in a row and are looking good for a fourth. Geelong hasn’t made the eight in 7 years. I am considering using Grecian 2000. Stuart is hosting The Apprentice and the number one news item that night is that the stock market just made a new all-time high. A stock market high that has not been achieved since October 2007.
“What a terrible period”, says the reporter, ‘it’s gone nowhere for 15 years”. Looking from 2007 they would be right. But what if you were an investor in 2012? The stockmarket has to rise 56% from its current level, just to get back to its former high. That’s what confronts a 2012 investor.
Assuming it does take till the year 2022 to get back to its previous high, it would result in a total return (i.e. including dividends) of about 9.5% p.a. Now, 9.5% is not that exciting? That’s just under the long term return from equities. Note, currently, the 10 year Australian government bond is offering around 3% p.a.
What if the market achieves a high earlier? It couldn’t happen some may say. Maybe, but did you know the US Stockmarket is within 5% of its all-time high? The country that was the scene of the sub-prime crisis. Think that through. Or are you waiting till the news is really good?