Pimco’s CEO, Bill Gross, claims that stock investors should think twice before applying the well established investing maxim of buying and holding into practice, “the cult of equity is dying”.
According to an article on The Wall Street Journal, Gross points out stocks have averaged a 6.6% annual gain on an inflation-adjusted scale for the past century. However, he believes that this rate of return is unlikely to be duplicated anytime soon due to a downward spiriling economy around the globe and goes on to say that the 6.6% return will not ever be duplicated without productivity and innovation that resembles that of Apple. In fact, the U.S. second-quarter GDP grew at a meager 1.5% rate, well below historical standards.
In addition to criticizing stock’s dismal return returns, Gross also chastises bonds, “What you see is what you get more often than not in the bond market, so momentum-following investors are bound to be disappointed if they look to the bond market’s past 30-year history for future salvation, instead of mere survival at the current level of interest rates.”
With lower expected returns for stocks and bonds, the average American is the big loser in this new investing environment. Investors seeking a cure that will solve the world’s problems shouldn’t hold their breath as policy makers in the past have tried to “inflate their way out of the corner.” However, people speculate that the Fed will commence on another bond buying program in order to stimulate the economy.
Bottom line for America: Cut your spending, up your savings, and reset the retirement planning tool ‘rate of return’ to about 1% a year.
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