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You Have a 95% chance of Loss When You Buy an Index (Dow)

beebee
edited May 2020 in Other Investing
Hard to believe, except when you have lived it.
Earlier this year I wrote about why market timing can be so appealing to investors. The key takeaway was that if you bought the Dow on a random day, there was a 95% chance that the index would be lower at some point in the future.

This implied that you could’ve gotten a better price 95% of the time if you waited (and knew the future). However, it also implied that nearly every time you buy the index, you are basically guaranteed to see your position lose money at some point in time.

But, the better question is: how much could you lose?
and,
This means that half the time you will lose 13.2% or less and half the time you will lose 13.2% or more. In addition, there is a 1 in 4 chance of losing 29.8% or more and a 1 in 4 chance of losing 4.2% or less.

And, for equities, you should expect to see a 50%+ price decline a couple times a century, a 30% decline once a generation, and a 10% price decline at least every other year.
You should always ask yourself, "how much am I comfortable losing?"

how-much-could-you-lose

Comments

  • WABACWABAC
    And, for equities, you should expect to see a 50%+ price decline a couple times a century, a 30% decline once a generation, and a 10% price decline at least every other year.
    Feels like we're ahead of schedule for this century.

  • BrianW
    Great read, thanks for posting.
  • VintageFreakVintageFreak
    Made me think. Will read again when I'm not drinking. Thanks!
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