TOP 5 IN REAL ESTATE NETWORK, Sept. 2010—(MCT) — Here we go again. Is the stock market headed back to its lows, or will we maintain the course for growth?
If you are an investor for the long term, your answer should be, “Who cares?” All investments outside of cash will eventually show signs of weakness, and it’s not necessarily a time to give in if you look at history.
In the past few years, investors who have had the option of staying out of stocks, selling and then getting back in later and staying invested at all times each have had different investment returns, according to an analysis by Fidelity Investments.
The ones who stayed out of stocks between September 2008 and March 2010 saw their accounts fall by 6.8 percent. Those who jumped back in after selling at the lows during this period saw their accounts rise by 6.1 percent. And those who did nothing saw their accounts grow by 21.8 percent.
Why the difference? Because market timing doesn’t work. Any time you are not invested in stocks and a surge happens, you miss the gains. Our brains often cause us to flee when faced with fear and join the crowd when we see others being successful. If we are able to block out this natural reaction when it comes to investing, our portfolios could be much better off.
Many pundits have been poking holes in the concept of buying stocks and holding them for the long-term. This concept is called buy-and-hold. The argument is if an investment is not doing well or the forecast is for weakness, then investments should be shifted to something that is doing well or provides safety against potential losses. This concept is called tactical investing.
While the arguments are valid for moving investments, the risk still persists that gains could be smaller because often the moves are made too late. Over the past 30 years, stocks have had annual returns of more than 11 percent, well above the returns of bonds. And those results come through a period where we saw a number of bear markets.
The real threat of moving out of stocks is the influx of funds into bonds, driving up bond prices that could, if not already, create a bubble in the bond market. Like the saying goes, what goes up must come down. And investments are no exception. Sometimes taking no action is the best action.
(c) 2010, McClatchy-Tribune Information Services.
