After inflation the expected real return is 1

After the new fall of 40 of the scholarships, investors are in a State of shock. The funds invested and reinvested in the Standard & Poor's composite index between 1998 and 2008 generated a zero real return: dividends earned on the portfolio were just enough to offset inflation. Today, the question is whether to stop to buy shares and buy bonds or Treasury bills.

The answer is no. Past performance may not be used to predict future developments. The period of 1998-2008 has been preceded by decades of good performance (1978-1988, 1988-1998).

A simple calculation: today, the rate of actuarial return of 10-year US Treasury bonds is 3.76. After inflation, the expected real return is 1.26.

At the same time, the yields of the actions that make up the Standard & Poor's index fluctuate from about 6. A percentage that companies announce their shareholders. Part of this value will be paid in dividends; another will be used to redeem shares; another still will be reinvested.

Two possibilities are open: business leaders know invest in more profitable than the stock exchange projects, either, on the contrary, they build empires corrupt wasting shareholders ' money.

The most reasonable assumption is that these two factors cancel each other. The fundamental real return expected on the diverse US equity portfolios currently lies between 6 and 7. The anticipated ROI is equal to this amount more or less the changes expected in the evaluation reports. Actions more linked with the increase in the PER (net price-earnings ratio per share), or less with the collapse of the PER Once more, the hypothesis is that these two factors cancel more or less one another.

However, are the actions not risky The benefits are not likely to fall Can the market suffer another decline of 40 Obligations are less safe than before The answer to these questions is: Yes, Yes, Yes and Yes.

But the stock declines that accompanied not cuts deep and persistent profits are provisional nature: they are caused by steep increases in perceived risks. When these risks proved to be exaggerated, the shares bounce.

What is stock collapse accompanied by a decrease in deep and persistent of the benefits of recessions

During the period preceding the second world war, when governments clung to the standard, recessions were episodes of deflation. Since the end of the second world war, "social democratic" Governments maintain social spending and rely on fiscal policy to stimulate production: it is therefore more likely that the benefits crisis accompanied by inflation.

A brutal and persistent profits decline engloutirait the wealth invested in shares, but inflation that would result in erosion deeper and broader real wealth invested in nominal bonds. As wrote by Edgar l. Smith in 1924 in "the atlantic monthly", when the risks are mainly macroeconomic, the obligations are not safer than diversified shareholdings in fact, they are even riskier.

All of these arguments apply that investors to long term that can afford to wait until the end of another fall of 40. For them, this could be even an opportunity and not a disaster. For pensioners and those immediately need of cash, stock market fluctuations call for caution.