You Can’t Keep The Market’s Down

In our weekly email update to clients it was nice to report a weekly double digit gain rather than what felt like triple digit losses in the past. Even with a week in the win column the market is still down over 30% year to date. That alone makes my stomach turn. The loss of wealth has affected every risk tolerance level and diversification strategy.


A few well know TV financial analyst have been heard saying to move everything to cash, run for the hills this is the next Big Depression. This week James Stewart wrote an article for the Wall Street Journal’s Personal Journal titled “Even the Great Depression Couldn’t Keep Stocks Down.”


In this article Stewart explains that during the Great Depression the S&P 500 fell 86% from September 16, 1929 to June 1, 1932. In September 26, 1930 the market was down 40% one year into its bear market.  Currently we are one year into our current bear market and the S&P is also down 40% from its October 2007 peak. If you bought stocks at this time in 1930 you lost another 40%.


If you had invested $100 in 1928 by the end of 1930, it was worth $98.75. At the end of 1935 it was worth $110.18, a 12% gain. In 1940 during World War II it was worth 107.37, still a 9% gain. If you held on to your investment for 20 years, it was worth $355.60, a 260% gain. During this same time, cash appreciated little and short term treasury’s rose 81% (far cry from 260%).


If you are in the accumulation phase of your life, this is a once in a lifetime opportunity to invest in oversold and undervalued stocks. How do you take advantage of this opportunity? Increase your 401K contributions, open up and or max out your IRA contribution. If you can pick your investments choose ETF’s or index funds and diversify your portfolio in large, mid, small and international stocks. If you want professional advice stay away from the large brokerage houses and banks, these are not financial experts, their sales associates that sell financial products rather than golf equipment at your local golf store. Instead seek out a fee only investment advisory firm in your area and from that list look for the ones that use index or DFA funds.


As to what the TV financial analysts are saying; I am on my fourth week of a no talking head diet! Long term investing to these guys is probably about 1 hour; the length of their show and now my additional time with my wife and two children.


Maintain a diversified portfolio, keep investing cost low and always invest for the long term.

By Published On: November 2, 2008

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