Sunday, October 26, 2008

Return to Investment Normalcy

The nineties created an impression of certainty for investment success. A growing economy, a rising stock market, increasing home equity and low interest gave people confidence about their financial future.

People started to believe there was no downside and no risk in our financial choices. This created overconfidence, leading to excessive risks. Then came the technology bubble, a housing bubble, the sub-prime mortgage collapse, and a horrific bear market. Significant losses in the stock market, rising mortgage foreclosures, failing banks and money market funds losing value caused the financial successes of the nineties to give way to the financial debacles of the aughts.

Once again the stock market looks risky, houses are for living in instead of flipping, and banks lend only to those who can pay off the loan. Excess gains have been wiped out and investing has returned to what is has been, should be and will be again - good returns for reasonable risk.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

1 comment:

Eric said...

It's essentially an experiential definition of "risk premium" that has been long overdue.