Originally Posted by donsutherland1  Of course there are a wide variety of investment vehicles. I cited stocks merely as an example, as there has been a tendency--particularly in the media--to mention that stocks offer the highest return, on average, for major investment choices with the implicit message that over the long-run, there is not too much risk. The reality is that persistent macroeconomic trends play a big role on stock market returns, as with those of any other investment vehicle. The outcomes are different for periods with elevated inflation vs. low inflation. They are different in the years and sometimes decade or so following an equities bust i.e., dot.com bubble, 1907 panic, 1929 crash, etc.
My point is that there is no single vehicle that is assured to offer let's say an 8% return. This holds for individuals to the largest and most sophisticated investment banks and other financial institutions. Indeed, if there were a largely fool-proof way to reap only investment returns, one would not be witnessing continuing write-offs from Merrill Lynch, Citigroup, etc.
One needs to continually adjust or fine-tune one's portfolio, be aware of the wide variety of instruments available, have some knowledge in practical hedging strategies e.g., the put options that you mentioned that give investors the right to sell a given security over a given timeframe at a given price (American option), use tactics e.g., stop orders to reasonably "lock in" gains, among other things.
Having said that, based upon the number of participants and funds in mutual funds, 401(k)s, etc., most investors tend to be relatively passive or semi-passive when it comes to managing their investments. "Buy-and-hold" is the norm. Considering the risks inherent in frequent trading, the time required to stay on top of developments, and role psychology plays in influencing short-term price-setting, for many investors the passive to semi-passive approach makes sense. |