Investing 9 Year Time Horizon

It is good to know the performance over a 74 year period or 60 year period or a 10 year period. How do you invest if you have a 9 year time horizon? To answer the question, we will look at the minimum return, maximum return, and percentage of time for a positive return for a Small Cap Stock Index, Large Cap Stock Index, Long Term Bonds, and Short Term Bonds in the book Investments.

The information for time horizons of 1 through 7 years showed that short bonds gave the best minimum return and highest percentage of positive returns. At the 8 year horizon, we saw a major reversal and stocks became the leader with the best minimum return, maximum return, and percent positive return. Will the trend continue for a 9 year time horizon.

We will look at the time period from 1926 - 1999, to include the Great Depression and 1940-1999 to reflect a more normal period. It depends if you want a true worst case or a more normal environment.

Time Period 1926 - 1999

Investment/Min Return/Max Return/% Positive Return
Small Stocks/4.96%/37.62%/100%
Large Stocks/0.80%/21.82%/100%
Long Bonds/-0.08%/14.52%/98%
Short Bonds/-0.16%/9.75%/94%

Time Period 1940-1999

Investment/Min Return/Max Return/% Positive Return
Small Stocks/4.96%/37.62%/100%
Large Stocks/1.42%/21.82%/100%
Long Bonds/-0.08%/14.52%/98%
Short Bonds/0.29%/9.75%/100%

What conclusions can we draw from this data:

1. The trend continues and at the 9 year time horizon, the same conclusions can be drawn as the 8 year time horizon.
2. Things have changed with stocks having better minimum returns, maximum returns, and % positive returns than bonds.
3. The data during 1926 - 1999 looks a little wierd as the % positive return for short term bonds is the lowest.
4. Bottom Line: If you can handle the ups and downs, keeping your focus on the long term, stocks outperform bonds in all categories. Buy stocks rather than bonds.
   

If you have a child going to college in 9 years you should be looking at mutual funds that contain large cap and small cap stocks.