Basic Investment Theory Explained

Kevin Cahill and Mauricio Soto

Just the Facts from Center for Retirement Research

Abstract: The S&P 500 Index dropped more than 40 percent between March 2000 and March 2003, and almost anyone who entrusted their retirement savings to the bull market of the late 1990s saw their portfolio shrink, often in dramatic fashion. Now that the stock market is regaining some of its lost value, should people return to their bull market strategies for double-digit annual returns on their retirement savings? In spite of the large fluctuations in the market, most investment advisors still offer the same guidance: consider both risk and return, determine oneís tolerance for risk and reassess this tolerance periodically, and diversify the share of funds allocated to risky investments. These rules of thumb are effective because they are based on widely-accepted results of economic and financial theory. In fact, theory emphasizes that the typical investor should focus primarily on one decision: how much to invest in risky assets. This brief explains why.

Keywords: investment; theory; retirement; 401(k) (search for similar items in EconPapers)
Date: 2004-03-10
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://crr.bc.edu/briefs/basic-investment-theory-explained/
Our link check indicates that this URL is bad, the error code is: 403 Forbidden (http://crr.bc.edu/briefs/basic-investment-theory-explained/ [301 Moved Permanently]--> https://crr.bc.edu/briefs/basic-investment-theory-explained/)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:crr:jusfac:jtf_9

Access Statistics for this paper

More papers in Just the Facts from Center for Retirement Research Contact information at EDIRC.
Bibliographic data for series maintained by Amy Grzybowski () and Christopher F Baum ().