Sunday, October 01, 2006

How to coax investors to think long-term

A tip of the hat to T. Rowe Price and the editor of its Taking Note newsletter for this attention-grabbing lead-in to an article on long-term investing:

How many ounces do you weigh?
How many hours
old are you?
How many yards is your commute?

Obviously, the way these questions are framed makes
no sense because the units of measurement are too
small. However, some investors make similar errors when
weighing their investment options and their volatility.

From the same publication comes this chart of historical investment returns. Notice that the five-year return for 1994-1999 was the highest on record. Neither you nor your clients should expect to live that high on the hog very often.

1 comment:

Jim Gust said...

I don't know how many ounces I weigh, but I'm trying to lose some weight, and I do know how many ounces I'm losing from day to day.

Not nearly enough--same as with my investment returns!