Coffee Can Newsletter – June, 2018

If you wished to invest in the stock market for 10 years, which of the following two portfolios would you buy? Portfolio A offers only 50% probability of making a healthy return over the next 12 months. However, as the holding period gets longer, the probability increases linearly to reach 95% for a 10-year holding period. Portfolio B offers 95% probability of making a healthy return over the next 12 months. The investor can repeat this process each year and hence have a 95% probability of making healthy returns over 10 years.