In general, historical inflation-adjusted
returns provide a realistic gauge of how you can expect your investments
to perform over the long term. This does not mean that year in
and year out your investments will meet — much less beat
— past returns. In fact, you can realistically expect that
some years your investments will significantly underperform the
historical averages, and you’ll even lose money. In other
years, you may handily beat the average annual inflation-adjusted
returns.
There are no guarantees that your long-term
investments will perform as well as similar securities have historically.
Nonetheless, historical returns have been consistent enough to
provide a sound idea of what you can reasonably expect as an investor.
Jeremy Siegel, The Wharton School
Take a realistic look at long- vs. short-term investing.
It's important to maintain a clear distinction between long-term and short-term investments. There's a trap that many investors fall into as the market surges upward month after month. It all seems so easy. In such circumstances, it may be tempting to withdraw funds from your money market accounts or refinance your house to invest in stocks. Think very carefully before doing these things. You still need a short-term, emergency source of cash. You still need a house. Both could be jeopardized if you plunge into the market at the wrong time. Remember that market risk increases as you shorten your investment time frame. If it's money you might need in less than five years, you're probably better off leaving it where it is.
Jeremy Siegel, The Wharton School 