Conventional Wisdom Won’t Work This Time


For years, Conventional Wisdom (CW) money gurus have been telling us that buy-and-hold investing is the way to go. All you have to do to grow yourself a nice nest egg is to get some high-quality stocks and bonds in the right mix to match your age and goals, and then like those infomercial ovens on TV, you can “just set it and forget it.”

The easy CW approach to investing naturally worked very well in an overall rising multibubble economy. As long as you stayed well diversified with a collection of average performing stocks and bonds, you could count on earning a good profit in the stock market and a steadily rising total return in the bond market, especially from the 1980s to 2000. With the Dow rising 1,000 percent in 20 years and falling interest rates pushing bond prices ever higher, investors could practically throw a dart at a stock page and end up with some good gains eventually. That’s because CW investing in a rising bubble economy is nearly effortless.

Then, beginning in 2000, all that started to change. Bonds still did okay, but that 1,000 percent growth in stocks got replaced by a big fat zero percent growth for the Dow and a 50 percent decline in Nasdaq stocks over the next decade. Nonetheless, the CW gurus seemed unfazed, plowing ahead with their CW investing as if America’s multibubble economy would always continue to rise. They didn’t see the bubbles, only the growth. And if ...

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