Trends in financial markets often take time to develop: Sometimes years, sometime decades. Unfortunately for investors, trends are often hard to say good-bye to as investors are often short sited, working against the change. In time, all financial instruments such as stocks, bonds, precious metals, interest rates, currencies, and real estate change price trends.
Investors had it pretty good in the stock market from the beginning of 1988 to the end of 1999. During that 12-year period, the Dow Jones Industrial Average rose from 2,000 to 11,700. The compounded annual return over that 12-year period was 16% per annum excluding dividends.
Unfortunately, the “up” trend in stocks ended in the beginning of the year 2000. Since then, investors in big Dow stocks have actually lost money, again excluding dividends. Investors simply have to accept the fact that since 2000 big cap stocks have been in a bear market that tries to lure investors back into the market via impressive rallies–only to continue to take money from investors again and again.
What’s my point here?
My point is that if we look at the price charts, we’ll see some obvious trends have changed in the past few years:
— Big cap stocks and big blue chip stocks, after having been in a strong 12 year bull market, started a new downward trend in 2000.
— Real estate, as measured by the Dow Jones Home Construction Index, after having enjoyed a tremendous up-trend in recent years, turned decisively bearish in the summer of 2005. This index is down 37% in the past 12 months.
— After a downward trend that lasted over 20 years, interest rates hit rock bottom in the summer of 2004. Since then, rates have steadily increased, establishing a new trend of rising interest rates.
— Gold, after being dormant for about 20 years, turned upwards in September, 1999. Despite a recent strong correction, I believe a new upward price trend in gold is well upon us.
How long will these new prices trends continue: Five years, ten years, twenty years, or more? No one knows for sure. All we can do is look at the price charts and see what they are saying today.
But, here’s a more important question to ask: Have you updated investment portfolio to benefit from the changes in various investment price trends? That’s the real question. If you haven’t yet, you might want to take a serious look at the new price trends discussed above and see how your portfolio benefits from the new investment trends developing today.