I recently picked apart the “subtract your age from 100″ rule in an InvestorPlace article, noting that it completely ignores the single most important element to any investment decision: valuation. Bonds are expensive today relative to stocks, so advising anyone over the age of 50 to keep half their money in bonds is to doom them to disappointing returns for decades into the future.
And as Fisher elaborates,
“This ignores things like the investor’s goals, how much cash flow they may need now or in the future and how much growth is appropriate for their goals. It ignores current circumstances, portfolio size, whether the investor is still working or not … And it ignores the spouse!”
Myth: America Has Too Much Debt
On this count, I actually disagree with Fisher in principle. Yes, Fisher is correct that Federal debt levels have little impact on the stock market and, in some cases, may actually help to fuel its rise. That does not, however, suggest that Americans should be complacent about high levels of government debt.
As we see in Europe today, there are consequences to be paid for fiscal irresponsibility. Eventually, they require painful austerity — meaning tax hikes and spending cuts.
Still, Fisher is absolutely correct when he says that the high current levels of Federal debt are not a valid reason for avoiding the stock market. Our debt levels as a percentage of GDP were far higher following World War II, and the 1950s and 1960s were a golden age for American prosperity and saw some of the strongest market returns in history.
Market Myths is chocked full of contrarian investment knowledge that will cause you to think. I recommend that you pick up a copy, and I recommend that you keep an open mind. You won’t agree with everything; I certainly didn’t. But if Fisher makes you question your assumptions, then he accomplished his goal — because ultimately, that’s the purpose behind the book.
My compliments to Fisher on a great addition to the Little Books series.
Charles Lewis Sizemore, CFA, is the chief investment officer of the investment firm Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities. Check out his new premium service, Macro Trend Investor, which includes a free copy of his e-book, The New Megatrend Investor: The Ultimate Buy-and-Hold Strategy That Will Make You Rich.