Question regarding long-term market timing

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Question regarding long-term market timing

Postby Schroeder » 03/21/06 at 09:47:21

Since hocus was presented with this question twice and he failed to reply both times, I will give it an honored place here on the "Simple Questions Rob Bennett Doesn't Answer" message board.

Schroeder wrote:hocus,

I'm having a little bit of trouble following your logic regarding long-term market-timing. If I understand you correctly, you favor stocks for the long-term (i.e. 30 years). And at current valuation levels according to your research, stocks offer 3.3% real returns at the low end and 5.3% real at the mid-point projection. This compares with a 1% real return currently available from I-Bonds. Therefore, for a person in their 20's and 30's with a long time horizon (at least 30 years), they should have most of their retirement assets allocated to stocks.

So it makes little sense to me for these younger investors to engage in any sort of market timing between now and 30 years from now.

But let me give a possible "what if" scenario. Let's say 20 years from now, I-Bonds are offered at 3.5% real. Should these stock investors sell at that point? If they do, they'll likely incur massive capital gains taxes on the appreciation of their stock holdings from the previous 20 years.

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