For thirty five years I’ve followed the stock market as part of my profession. For the twenty prior years, starting at about age ten, I was a spectator and minor participant. During those 55 years, I’ve learned that the stock market is not predictable. Good years don’t necessarily follow good years and bad years don’t continue indefinitely.
During the best markets there are reasons to worry that a serious decline is around the corner. When awful markets drag on and on, there is always glimmer of hope. No one knows what will happen next year.
When your time horizon is longer, say to five or ten years instead of one year, it’s more likely that the following time period will be similar. But this last five year period, 2009-2013, was dramatically better than the previous 2008-2012 period. The one-year return for the Standard and Poor’s 500 Index* in 2013 was an INCREASE of 32%. Last year replaced 2008 when the S+P Index LOST 37% of its value.
The average five-year return from 2008 to 2012 was only 2% per year. The next period from 2009-2013 showed an astounding 18% per year return. Unfortunately many investors got out of the market in 2008 and have not yet returned.
I apologize that my inner financial geek has taken control of my web commentary, but I have a point to make. Don’t get too excited when the market is good and don’t get too cautious when the stock market is scary. When you invest for the long-term, you need to be patient and not get too wrapped up in how the current stock market is behaving.
* See Index performance chart on my website. You cannot invest in the above indices and averages. Indexes are unmanaged groups of securities and are not directly available for investment. Past performance is no guarantee of future return.