Share study needs a long-term view
What's the biggest worry when investing in shares?
Saturday, September 3rd 2005, 6:51PM
by The Landlord
For many people, it's the fear of losing the lot in some huge crash, like what happened in the 1930s.But exactly what did happen to sharemarket investors in the Great Depression? Did everyone really lose everything and then jump out the window?
Economist J. K. Galbraith writes in The Great Crash 1929 that a suicide wave was in progress and 11 well-known speculators had already killed themselves.
Clerks in downtown hotels were said to be asking guests whether they wished the room for sleeping or jumping.
In this two-part series I want to look at what happened to two sharemarket investors, one wanting growth, the other income.
This first column tracks the performance of the portfolio of an individual, Uncle Sam, saving for retirement through that period.
Part two will examine the impact of the crash on the portfolio of Aunt Daisy, who is retired and for whom the income-producing ability of the portfolio is especially relevant. All returns are pre-tax and pre-fees.
To make the analysis simple, we will assume that both investors' portfolios were invested totally in United States stocks; pretty risky but, what the heck, it's August 1929, the sharemarket has risen by almost 80 per cent in the past two years, and everyone and everything is buzzing.
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