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Investing

Past performance means continued future performance?

Obviously this is not always true. A better statement would be 'past performance does not guarantee similiar future performance'. But let's look at areas where generally people are not willing to admit the truth of that simple statement.

The USA stock market

Past performance (apr. 1920 to present) does not guarantee future performance. Just because the general stock market grew at an average of 8% a year doesn't mean it will continue to do so. Most people will agree to this. But the first thing most investment advisors, mutual funds companies, etc, will pull out is a chart of the US large-cap stock market over the past 100 years.

In early 2009, with lower stock prices, this may seem obvious or depressing, but how many people were thinking about it in 1999, for example?

Real estate

In general, prices on real estate were too high to be a good investment around 2005ish to 2009-2010. 3 ways that investing in real estate pays back are appreciation, income and tax benefits. Generally real estate prices keep up with inflation. Rent increases match inflation rates, assuming they are normal. But it is pretty easy to figure out a house is overpriced when the rent would be 3000 a month but the mortgage would be 4000 per month. But people were assuming that since prices went up last year by 20% they would keep going up. Butx 'past performance does not guarantee similiar future performance'.

You can't just sit on you money, either

Well you can sometimes. But what about inflation?

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