Stock Market Returns And Retirement Portfolios

Figure 1: Stating returns provided from S&P 500 and 20-year bond

(Source: As depicted in the case study)

The above figure mainly helps in understanding the whole return that is being provided from both S&P 500 index and US 20 year Bond. Stock returns during the ugly bear market of 1973 were relatively low in comparison to the US 20-year bonds. From the holder figure it could also be identified that Bond return and stock return goes hand in hand (Bodie, 2013).  There is relatively less difference between the overall bond's return and stock market return before 1990, after which the stock market expanded and provided higher returns from investment. However, the constant increment in the overall stock market did not decline returns provided from bond market.  The returns from bond market also increased adequately in comparison to capital market returns. Furthermore, the expansion of returns between the bond and capital market was witnessed in 2000. Due to the immense returns provided from stock market. However, the overall returns contracted during the economic crisis of 2008, which meet both the returns from Bond and stock market scene in 2009. This only indicates that a constant income could be provided from bonds by reducing any kind of risk from investment. Furthermore, it is also evaluated that stocks in 1969 only surrender to the Government Bonds due to a recession any financial market, whereas it could provide a higher return from investment to the investors in your future. Carpenter, Lu & Whitelaw (2015) mentioned that Investments in bond market could only get a constant income, whereas stock market investments could allow investors to hop onto the bull market and earn exponential return.

Figure 2: Stating return provided by stock market in past 30 years

(Source: As depicted in the case study)

Therefore, the first debate mainly emphasizes on whether stock market could provide long-term returns from investments. However, from the overall figure it could be evaluated that stock market provides a constant and higher income from investment in comparison to bonds. Nevertheless, stock market returns allows investors together higher returns as depicted in the above figure where stock market returns was relatively higher than the bond from 1990 (Kang & Ratti, 2013). Returns from stock market eventually increased in comparison to the 20 year Bond enlisted in the figure. This only proves that in the end returns from stock market are relatively higher. This could allow investors to increase their overall growth and gather dividend from their Investments (Kang, Ratti & Yoon, 2015). This increment in the overall share value and a constant return in form of dividend could allow investors invest their overall some in the stock market. However, a decline in the stock market could be seen in 1973 where the capital market was in recession. After the recession returns from stock market generally increased and crossed the US 20 year Bond in 1980, after which the returns from stock market was relatively higher than the bond market.  Moreover, in figure 2 the overall returns from stock market over the period of 30 years is relatively higher than in a short term. This only indicates that investments in stock market with a long-term perspective are a viable approach, which would allow investors to attain higher growth from Investments (Lee, Chen & Hartmann, 2015).

From the evaluation of Figure 2 returns generated by the stock market in the long term relatively increased, which satisfied concerns of first debate or argument. The higher returns that are provided by stock market can be evaluated from price action of S&P 500. This only confirms that return provided from stock market would eventually allow investors to increase the overall portfolio growth in the end. However, Magara (2016) stated that use of intense derivative markets and instruments meaning increases the overall volatility in stock market, which in turn increases the overall risk from investment. On the other hand, Mukherjee & Roy (2016) argued that due to the use of short selling stock market is able to deflate rising bubble in the system.

The second critics mainly indicates that due to the high risk involved in investments in stock market it is not adequate for the  retirement portfolios. This only indicates that critics mainly view stock market, as a highly risky investment, which might reduce the overall return from investment due to high losses. The volatility in the stock market is mainly due to the changing returns that are provided from different companies. Furthermore, the accommodation of stock market investments in retirement portfolio eventually increases the overall risk, while reducing profitability from Investments. Retirement portfolios mainly focus in generating constant return for the investors, which will be used in supporting the expenses in retirement days (Powell, Qian, Shi & Zhu, 2015). However, the use of Bond investments could not support the aggregate return that is needed by the ultimate portfolio. Therefore, the critics thought in not adding the overall stock market companies in the retirement portfolios are correct. Thus, investments conducted by retirement portfolios needs to be a collection of both bond market and stock market. This combination of Investments conducted by retirement portfolios could eventually help in improving the overall returns and reducing risk from Investments. Investors to reduce the overall risk from investment and maintain a constant return have used the combination of stocks and bonds. Hence, applying the method using both stock market and bond market would eventually help the retirement portfolio to generate a higher income from investment (Travlos, Trigeorgis & Vafeas, 2015).

Therefore, it could be understood that investors that have long term perspective it effectively used in stock market return to generate a high income from investment. However, investors that are risk adverse needs to use combination of stocks and Bond for reducing the overall risk from investment. Hence, stock market returns are relatively higher in comparison to returns provided from bond market. Thus, investors could effectively use stock market returns to attain higher growth in the end. Furthermore, the combination of both stock and bond could eventually allow investors to reduce the risk and attain a constant income from their investments (Wachter, 2013).

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