|
Setting Realistic Expectations
Establishing measurable financial goals is an essential first step towards successful investing. By focusing on long-term historical returns it is easier to set realistic expectations and keep short-term market fluctuations in perspective.
Here we look at the three basic types of investments:
Stocks - have returned an average of 10.20% between 1926 and 2002.1 Stocks represent an ownership investment in a corporation’s assets and earnings. While stocks entail greater risk than other investment types, they have historically provided higher returns, making them the preferred choice for long-term growth potential.
Bonds - have returned an average of 5.45% between 1926 and 2002.2 Bonds represent an IOU issued by a private company or government. In exchange for the loan the issuer pays the bondholder a specified amount of interest for a specified time until repayment of principal at maturity. Bonds prices tend to fluctuate less than stocks, in exchange for lower return potential.
Cash Equivalents - have returned an average of 3.79% between 1926 and 2002.3 Cash or money market securities are debt instruments issued by corporations or governments that mature in one year or less. Because of their short timeframe, they generally entail little to no risk and, therefore, pay fairly low returns.
Past performance is no guarantee of future results. This chart is for illustrative purposes only and does not represent the performance of any specific Cavanal Hill Fund.
1Stocks are represented by the Standard & Poor’s 500 Index, an unmanaged index generally representative of the U.S. Stock Market.
2Bonds are represented by the U.S. Long-Term Government Bond Index, an unmanaged index generally representative of the long-term U.S. bond market.
3Cash Equivalents are represented by the U.S. 30-Day Treasury Bill an unmanaged index generally representative of the rate of return on a savings investment.
Government bonds and T-bills are guaranteed by the U.S. Government and offer a fixed rate of return and principal value of held to maturity. Investors cannot invest directly in any index, although they can invest in the underlying securities.
|