Last week I said that today represents an attractive entry point for long-term investors.  Many find it difficult to invest in equities following a decade of poor stock performance and with the today’s uncertain economic backdrop.  But those who are patient may be rewarded. 

Last month I presented charts that showed differences in volatility of one-year, three-year, and ten-year returns of U.S. stocks.  The key takeaway from those charts was that stock returns are volatile in short time periods, but tend to revert to the mean over time.

Now consider the table below.

Each time the average ten-year return of the S&P 500 was below 6%, the following ten-year period has been very good to investors, with an average return of 13.14%. The following 20-year period is even more impressive, averaging 14.82% per year.

Now consider this: stock prices are down roughly a percent over the past ten years, but valuations are much more attractive than they were in 2000.  In fact, a dollar invested today buys more than double the underlying earnings than it did a decade ago. Ten or 20 years from now, investors with long time horizons may look back on today’s volatile market and realize that it was a great opportunity to invest.

Peter Lazaroff, Investment Analyst

www.acrinv.com