Real Investment Advice

Lance Roberts is the Chief Investment Strategist at RIA Advisors and the lead voice behind Real Investment Advice. For more than 30 years he has written about equity markets, Federal Reserve policy, macroeconomic trends, and the behavior that drives investor decisions. He writes the weekly Bull Bear Report and hosts The Real Investment Show, broadcast live weekday mornings. His commentary appears regularly on CNBC, Fox Business and Bloomberg, and he has been cited by the Wall Street Journal, Business Insider and MarketWatch.

His approach starts with managing risk, because the math of loss is unforgiving. Every answer on this page comes from his published research.

Lance’s essential reading

Over long periods, yes. Over short periods, no. Measures like the Shiller CAPE ratio and market cap to GDP have a strong inverse relationship with the returns of the following decade. High starting valuations have historically led to weak ten-year returns, and low starting valuations to strong ones.

Valuations tell you what you are likely to earn, not when the market will turn. They reflect investor psychology at the moment you buy, which is why they work as a gauge of future returns and fail as a timing tool.

The Best Measure Of Future Stock Market Returns

Gains and losses are not mirror images. A 50% decline requires a 100% gain just to get back to even. A 10% gain followed by a 10% loss still leaves you behind where you started. That “volatility drag” compounds quietly over time.

Timing makes it worse. A large loss early in retirement leaves less capital to recover with, no matter what the long-term average says. Avoiding the big loss does more for long-term wealth than capturing every gain.

Loss: Why Crashes, Timing & Valuations Matter

Bob Farrell, the longtime chief market analyst at Merrill Lynch, distilled decades of market history into ten rules. Markets return to the mean. Excesses in one direction lead to excesses in the other. There are no “new eras.” Parabolic moves go further than expected but do not correct by going sideways. The public buys the most at the top and the least at the bottom. Fear and greed beat long-term resolve. Markets are strongest when broad and weakest when narrow. Bear markets have three stages. When all the experts agree, something else tends to happen. Bull markets are more fun than bear markets.

The rules endure because human behavior never changes. Rule #9 is the one to remember when the consensus is loudest.

The Rules Of Bob Farrell, An Updated Illustrated Guide

Over time, the 10-year Treasury yield tracks the economy. It roughly equals real economic growth plus inflation, a relationship that has held for decades. When growth and inflation run hot, yields rise. When they slow, yields fall.

The popular claim that rising federal debt forces rates higher does not hold up against the data. Japan carries far more debt than the U.S. at far lower yields. Rates follow growth and inflation, not the size of the debt.

Rising Interest Rates: Why The Narrative Fails Against The Data

Not in the way the “doom crowd” suggests. A government that borrows in its own currency cannot be forced into default like a household, or like Weimar Germany paying debts in foreign currency. Every dollar of government debt is also a dollar of private-sector savings.

The real cost is slower. Rising interest payments and unproductive spending crowd out private investment and weigh on economic growth. The risk is not collapse. It is a long, slow drag on growth. Such is the true price of debt.

Government Debt: Not What The Doom Crowd Thinks It Is

The “money printing” story misreads how money is created. In the modern banking system, loans create deposits, so the money supply largely grows with economic activity. Inflation depends on how fast money moves through the economy, its velocity, as much as on how much of it exists.

Money supply growth alone does not cause inflation. That is why deficits by themselves are a poor reason to abandon productive assets for gold or bitcoin. Hard assets can diversify a portfolio, but their prices hinge on the dollar and real interest rates.

Money Supply Growth: A Thesis With A Fatal Flaw

The biggest gap between market returns and investor returns is behavior. Confirmation bias, herd behavior, anchoring to past events, and chasing recent winners lead investors to buy after big gains and sell after big losses.

Most investors do not lose to the market. They lose to themselves. A written plan and clear rules for managing risk do more to close that gap than finding the next hot stock.

Behavioral Traits That Are Killing Your Portfolio Returns