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Earn 15% annually in the stock market.

Given that I’m currently working on a narrative-style investment book, I figured it would be a good idea to read some of the others in the field. A couple weeks ago I read (and thoroughly enjoyed) The Richest Man in Babylon, and over the last couple days, I read David Chilton’s The Wealthy Barber.

The most recent version of the book has a copyright date of 1998. And boy does it show! (And I’m not even talking about the references to saving up for a VCR, which must have been left in from a version even earlier than ’98.) I’m talking about the assumed rate of returns in all the investment examples.

Over and over, Chilton uses an assumed annual rate of return of 15% for investments in equity mutual funds. 15%! He also states that an “ultraconservative allocation” should easily be able to earn an 8% rate of return. Funny: Just the other day I was predicting an 8% long-term return in the stock market–and I was saying that we should be excited about it!

I find it fascinating that Chilton–an author who expounds the virtues of conservative investing (i.e., suggesting CDs in IRAs for people in their late 20’s)–was caught up in the absurdly optimistic expectations of the era. I guess it’s hard to escape.

Maybe, just maybe, we’re seeing the exact opposite going on right now. 😉

By the way, for anybody who’s curious: From January 1, 1998 to December 31, 2008, the market’s actual annual return was a mere 1.03%. Looks like he was a little off! Hehe.

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