Some thoughts on investment horizons

The fact that stocks usually go up makes permabulls look like idiots once in a while and permabears look like geniuses once in a while. -- Michael Batnick

Michael Batnick is one of the better bloggers writing out there today.  I think the Rithotlz org must force their crew to write and write well.  It must be some kind of organizational totalitarian positive force thing.  In this post "Playing the Odds" Michael's main point, to which he is taking the other side, a view of which -- the other side that is -- I am sympathetic, is that if you (you who are selling investment or advisory services) say the sky is falling often enough, when the sky falls just a little bit, not only are you vindicated but your marketing is now officially effective for the next 10 years. 

My thoughts were elsewhere, however. I was thinking about investment horizons.  Here is one of the post's charts with some emendations. To quote Michael on his intro to the chart "Sam Ro is fond of saying “stocks usually go up.” The *chart below supports the statement that historically over time, stocks usually did go up. This is why it makes good sense for financial pundits to play on the bullish side." :

What I was thinking about when I looked at this were two scenarios: A) investment horizon of greater or equal to 20 years with no spending constraint, and B) investment horizon of less than 20 years but more than 10 and there is a spending constraint[1].  It is a little ambiguous, given the chart and the setup, on what to think about these scenarios.  Scenario A is probably similar to a young person accumulating or an institutional investor.  Scenario B is more like a 60 year old that plans to annuitize some or all of a portfolio at around age 75.  Both scenarios can likely handle a decent amount of equity risk but Scenario B probably needs to think pretty hard about the plan or at least "plan B[2]" if bad things happen in the intervening years.   

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[1] Maybe also throw in something like our current market environment with iffy return expectations.

[2] no idea what plan B is, just pointing out some horizon risk.