Since World War II, most recessions lasted 10 months !

The US equity markets now seem to be anticipating an economic recovery from the current recession within a few months. Most investors realize that the US economy today has many pillars of strength. Therefore, whether this recovery happens quickly or somewhat later, it will grow again as it always has over the last century. And, since World War II, most recessions lasted 10 months. The longest lasted 16 months only because of very serious structural problems. This recession is already 9 months old.

Economic health matters because growth in equity valuations is justified when corporate earnings grow.Many, many investors forgot this when they were caught up in the irrational exuberance of the late 1990s. During that time, investments were being made in any and all technology and telecom offerings regardless of the soundness of their business plan or whether their future earnings potential would ever justify their market value. When the 'bubble burst' those investors were 'burned' very badly.

But, it certainly does not mean that equity investing has no future. In fact, this decade could well be one of the best because of the convergence of very strong demographics, continued globalization and growth in technology.

It is a fact that the largest population group in US history by far, the 'Baby-Boomers' (born from 1947 to 1964), are now well into their peak earnings years. More and more are becoming savers and investors every year as they mature and become 'empty-nesters'.

For more information about baby boomers moving to Costa Rica, go to this informative blog at www.costaricarealestate.typepad.com
and this website: www.boomersincostarica.com

Harry S. Dent and others have illustrated the power and predictability of demographics for most of the last century. They have also presented strong evidence that more money in the hands of more people (the 'Boomers') drives markets.

Warren Buffet and other successful investors have long been preaching for equity investors to "buy low and sell high". Why was it then that so many of us were still eager to buy late in 1999 and early 2000 when the market was high? And why are so few taking advantage now that market valuations are much lower?

Is your money still tucked under your mattress for safekeeping, or in bonds and money market funds? What are you waiting for?

In his book, 'One Up on Wall Street', Peter Lynch tried to prove once and for all that putting money into stocks is far more profitable (over the long run) than putting it into bonds, CDs or money-market accounts. In his book, 'Beating the Street', Lynch went on to say: "if you hope to have more money (in the future) than you have today, you’ve got to put a chunk of your assets into stocks".

There is compelling evidence that the first decade of the 2000s will be an excellent one !

Sure the 20th century has been full of 'bear markets', not to mention recessions, but in spite of that, the results are indisputable: over the long, run stocks or stock mutual funds have proven to be the most valuable assets of all portfolio choices.

Persuasive proof of this presented by Lynch was from the Ibbotson SBBI Yearbook, 1990 under the heading Average Annual Returns for the Decades from 1926 to 1989. These decades included a depression, wars, and some other weak periods in economic history. It shows that in only one decade out of seven, did bonds outperform stocks. A 6 to 1 advantage for stockholders over bondholders is very good odds indeed.

To illustrate the advantage even more dramatically, the Ibbotson graph provided a direct comparison between investing in long-term government bonds versus investing in the S&P500 stocks starting in 1926, just before the great market crash. Over this 64 year period, $10,000 invested in long bonds would have been worth $160,000 in 1989, whereas the same amount in S&P500 stocks would have been worth $2,500,000. In conclusion, as Lynch so ably put it, "Gentlemen who prefer bonds don’t know what they’re missing".

Finally, remember the advice provided by Buffet: 'Buy low - sell high'

There is compelling evidence that the first decade of the 2000s will be an excellent one for equities. What are you waiting for?

For book references or more detailed information on equity investing, please contact the author at (506) 257-6646.

© El Residente ARCR Administración S.A. San José, Costa Rica N.B. Like all information on the internet, this article may currently be incorrect or out of date.