A person that does not have enough buffer to survive a few years does not have the time to wait for the stock to recover.A person with a 10 year life expectancy certainly may want to avoid stocks. Sorry if the OP said something like that and I missed it. If they are 75, all cash/bonds/CDs would be perfectly reasonable. If you are 40, 50, even 60, I think cash will prove disappointing over long spans of time. You trade volatility for inflation.But, if someone can't survive the 10 years, how does the stock can beat cash in 10 years help? You have to survive in order to succeed.Sure could, which is more likely to happen? I believe cash has beaten stocks about 1/3rd of the time, and lost 2/3rds of the time on a yearly basis. Those are already bad odds, then look at 10 year periods, stocks almost always come out ahead. 20 year holding periods and its a non-starter.Or....But here is the issue, almost instantly, when interest rates start to drop, stocks will have moved dramatically.
You could have this happen.
Rates go up for 8 years and cash beats stocks.
https://www.portfoliovisualizer.com/bac ... zpre8nfI5K
Or worse, you get a lost decade for 9 years and stocks give you a negative return while cash gives you positive.
https://www.portfoliovisualizer.com/bac ... 5PgjGiIpr1
Stocks are up over 20% this past year, cash is already miles behind.
And, the stock could crash 50% and give up all the gains in the coming recession. Hence, beating the cash in the short term does not help.
KlangFool
"If you are 40, 50, even 60, I think cash will prove disappointing over long spans of time. "
Not as disappointed being wiped out in the short span of time.
Diversification is the answer.
"You trade volatility for inflation"
It is not necessary to be 100% stock. It is not safe to be 100% stock.
KlangFool
Statistics: Posted by KlangFool — Thu May 02, 2024 7:04 am — Replies 52 — Views 3794