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CIO Blog By Paul Hrabal, Chief Investment Officer of One Fund
July 13, 2009 Stocks Win In The End Owning businesses and sharing in their profits – in other words owning stock in companies – produces the best return for investors over the long run. Properly diversified across industries, geographies and company sizes, stocks have historically outperformed other investment types. Historical Annualized Return1 Stocks – 10.4% Stocks More Risky? But aren't stocks more risky than, say, government bonds or bank CDs? Yes, owning stocks carries more risk in that prices are more volatile, so the value of your investment can go up and down unexpectedly. Stocks, for example, lost nearly 40% in 20082. But for the long term, buy-and-hold investor stocks historically revert to their typical returns over time. Based on the historical returns provided above, stocks tend to generate the best return over time compared to other investments shown, and your money grows the fastest vs. inflation. If stocks grow at, say, 10%, even after 3% inflation you would be ahead 7%. If you put your money in CDs at 2%, with this scenario you could actually be losing 1% a year (2% return less 3% inflation.) For money that won’t be needed for many years, is the volatility of stocks the greater risk or is the greater risk the possibility that other investment types won’t keep you ahead of inflation? Not For Everyone The "buy and hold stocks for the long run" mantra is not the best approach for everyone. Stocks could be appropriate for money you believe you don't need in the next 15 years. But for money that you may need sooner, other investment choices might be more appropriate. Stock Returns Make Sense The fact that stocks win over time makes a lot of sense if you think about it. Private enterprise is the greatest wealth creator ever devised by man. Owning stocks means owning your piece of that juggernaut and sharing in any profits it generates. Next topic: How can 80% of people be wrong? How best to invest in stocks? 1 Source: Stocks, bonds, cash: Ibbotson Associates, historical data 1926-2008. Real estate: “The Equity Risk Premium,” Goetzmann and Ibbotson, 2006. Stocks are 80/20 split of U.S. large and small companies, bonds are intermediate term U.S. government bonds, cash is 3 month U.S. Treasury bills. 2 As represented by the S&P 500 Index, Standard and Poor's data, 12/31/08. |
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Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus. Please read the prospectus carefully before you invest. |
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An investment in the Fund is subject to risk, including the possible loss of principal amount invested. Other Fund risks include asset allocation risk, foreign securities and currency risk, emerging markets risk, small-cap, mid-cap and large-cap risk, trading risk, and turnover risk that can increase Fund expenses and may decrease Fund performance. The Fund is, also, subject to the risks, which can result in higher volatility, associated with the underlying ETFs that comprise this “fund of funds”. Newly organized, actively managed Funds have no trading history and there can be no assurance that active trading markets will be developed or maintained. Brokerage costs will reduce returns. When the Fund invests in Underlying ETFs, in addition to directly bearing the expenses associated with its own operations, it will bear a pro rata portion of the Underlying ETFs’ expenses (including operating costs and management fees). Consequently, an investment in the Fund entails more direct and indirect expenses than a direct investment in the Underlying ETF. Distributed by Foreside Fund Services, LLC. |
