Sunday, September 26, 2010

Investing - How Timing and Luck can Play a Role

According to The One Missing Investing Ingredient: Luck, chance plays a significant role in the returns of an investment portfolio. For example, the article reports that the difference between 1964 and 1965 in investing a lump sum would have resulted in a 20% higher return over 30 years.

Prior to the recent economic crisis, many articles focused on historical average returns of the stock market. Not many articles acknowledged how much the luck of timing could impact investment returns. However, while the luck of timing can significantly affect one's investment returns, it is not a controllable factor. No investor can predict the best time to invest when the results of the following 30 years are unknowable.

The article's solution? Manage those areas that are controllable. Save early, save as much as possible, diversify investments, keep expenses low and recognize that historical averages are no guarantee of future returns.

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

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

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