How's the Market Doing Today?
You won't find out here. At First Investors, we believe that little is gained from being focused on the short-term movements of the markets, and much is often lost. People who make decisions based on the market's recent movements tend to end up with investments that have had a good run, are priced fully, and are due for a fall. At the same time, they shun solid investments that have been out of favor lately and are undervalued as a result. Many people fall into this trap, and suffer significant consequences.
A study by Dalbar, a respected financial research firm, has helped to assess the damage that investors suffer from market timing, performance chasing, and other short-term investment practices. Dalbar found that between 1990 and 2009, a 20-year period when the S&P 500 averaged an annual return of over 8%, the average equity fund investor achieved an annual return of just over 3%. The main reason given by Dalbar for this result is that investors simply didn't hold on to their investments long enough.
We recognize that the only way to be reasonably sure of earning a solid return from your investments is to embrace a long-term perspective. Our economy grows naturally over time, and millions can benefit from this growth, if they're patient. There are risks inherent in all forms of investing, including, but not limited to, market risk. Taking the long view can help mitigate these risks.
So, rather than watch the daily movements of the Nasdaq or the Dow, we think that more insight can be gained by looking at results achieved over a longer period. From the beginning of 1926 through the end of 2009, large-cap stocks posted an annual gain in 60 of those 84 years. Looked at another way, you had a 29% chance of losing money if you held your investments for just a year. However, over that same period of time, stocks produced a gain in 71 of the 75 rolling ten-year periods that can be constructed, and in all of the 15- and 20-year periods.
The case for a long-term investment horizon is clear. With that in mind, it's important to focus on strategies that can help you to stay the course. A balanced approach, using mutual funds that invest in stocks, bonds, and money market instruments, has proven effective for many investors. We urge you to stay in contact with your registered representative, who can help you make sure that you stay on track.
