FINANCIAL TIPSAlan S. Moore / L’Observateur / March 15, 2000What do you do when the sky begins to darken, the weather turns ugly, and lightning, thunder, and rain fill the sky? Do you begin to panic and think about making a permanent move to a new area? Of course not. Instead, you probably close the windows in your carand home, make sure all children and pets are inside, and prepare yourself mentally for a few hours or more of stormy weather. Based on years ofexperience, you know that the storm won’t last forever, and that with the passing of the clouds, the sun will shine again.
Published 12:00 am Wednesday, March 15, 2000
Market Volatility As a general rule, the stock market experiences similar periods of sunshine and stormy weather. If you look at the accompanying graphic, youcan see how the stock market has performed over the last five years.
While the average annual total return for the S&P 500 was 15.1 percentduring those five years, the one-year returns have been as high as 37.5percent in 1995 and as low as 1.3 in 1994. And, since the returns for thelast two years have been much higher than the average, it would not be surprising if the market were to drop in the future.
With this in mind, you may be tempted to get rid of the stock investments in your retirement plan.
But that may not necessarily be the appropriate move for you, especially when you’re investing for a long-term goal that may be 10 or 20 years down the road. For even if your stock investments decline in the shortterm, over the long term, you have the opportunity to recoup any short- term losses and, ultimately, have stock investments with positive returns.
Remember, too, that even though stock investments may experience broad swings from year to year, historically they have out-performed more stable investments over a period of years.
Market Timing Finally, note that if you sell your stock investments when the market is performing poorly and acquire them again when the market is recovering, you’ll be buying high and selling low. This is the exact opposite of theideal selling strategy. A much better approach is to prepare yourselfmentally and try to stay invested in the stock market not only when the sun is shining but also when storms it. In other words, if you can endurethe dark clouds of a down stock market, you’ll increase your opportunity to benefit from the sunny skies of a rising stock market in the future.
ALAN S. MOORE is a financial advisor of Legg Mason Wood Walker, Inc., adiversified securities brokerage and financial services firm that is a member of the New York Stock Exchange, Inc. and SIPC. He writes thiscolumn every Wednesday for L’Observateur.
Back to Top
Back to Business Headlines
Copyright © 1999, Wick Communications, Inc.
Best viewed with 4.0 or higher
