Hey 54-year-old boomers, stocks are still the best thing to hold until you turn 65

http://jimoshaughnessy.tumblr.com/post/108099784929/hey-54-year-old-boomers-stocks-are-still-the-best“The Chinese use two brush strokes to write the word ‘crisis.’ One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger—but recognize the opportunity.”         
                        ~John F. Kennedy
As stock prices skid lower and lower, ask yourself this question: “When do I need the money that I currently have invested in the stock market?” Chances are, you don’t need it tomorrow. And if you DO need it tomorrow, you should never have invested in the stock market in the first place. I recommend that you need a minimum five-year time horizon before you should invest any money in stocks. Let’s say that you, like me, are 54 years old and reckon that you will need the money at age 65. That’s an 11-year time horizon. Next, look at what the possible outcomes are over that 11 year holding period. Between 1926 and 2014, here are the average, inflation-adjusted gains for four asset classes:
*S&P 500: inflation-adjusted average cumulative 11-year return is 136 percent, with $10,000 growing to $23,600.
*U.S. Long-term Treasury bond: inflation-adjusted average cumulative 11-year return is 37 percent, with $10,000 growing to $13,700.
*U.S. Intermediate-term Treasury bond: inflation-adjusted average cumulative 11-year return is 30 percent, with $10,000 growing to $13,000.
*U.S. T-bills: inflation-adjusted average cumulative 11-year return is 6 percent, with $10,000 growing to $10,600.
Now clearly, stocks—the asset class that appears the most risky right now and over the short-term–provides the best return of all of the basic investments available to you right now. And keep in mind, U.S. bonds are coming off their best returns ever, so it is very unlikely that they will provide returns near the long-term averages—indeed, they are far more likely to provide very poor returns over the next 11 years.
For those bears among us, what about if we match the worst 11-year returns for each asset class over the next 11 years, something I think is highly unlikely, especially for stocks. Here are the worst 11-year returns for each of the four asset classes:
*S&P 500: inflation-adjusted worst cumulative 11-year return is -36 percent, with $10,000 falling to $6,400.
*U.S. Long-term Treasury bond: inflation-adjusted worst cumulative 11-year return is -42 percent, with $10,000 falling to $5,800.
*U.S. Intermediate-term Treasury bond: inflation-adjusted worst cumulative 11-year return is -37 percent, with $10,000 falling to $6,300.
*U.S. T-bills: inflation-adjusted worst cumulative 11-year return is -43 percent, with $10,000 falling to $5,700.
Amazing—even if you are expecting the next 11 years to duplicate the worst 11-year periods for each asset class, you’re still better off remaining in stocks, with all the others providing worse returns.
The next thing you need to consider are the odds of negative returns for each asset class over the next 11 years. Between 1926 and 2014, here’s the percentage of the times each asset class provided inflation-adjusted 11-year losses (of any magnitude):
*S&P 500: 17 percent of all rolling 11-year holding periods.
*U.S. Long-term Treasury bond: 43 percent of all rolling 11-year holding periods.
*U.S. Intermediate-term Treasury bond: 29 percent of all rolling 11-year holding periods.
*U.S. T-bills: 38 percent of all rolling 11-year holding periods.
There you have it—whatever metric you choose to look at points to stocks as the least risky asset for you to hold over the next 11 years. They have the fewest negative 11-year returns; their worst-case scenario is the best of the four asset classes and their average 11-year inflation-adjusted returns are dramatically better than the other three.
So, if you are a fellow 54-year-old, don’t think about what is happening to your portfolio today, think of where you want it to be when you’re 65