The Benefits of Investing Consistently
Sometimes you only need to hear about The Crash of '29 or remember the aftereffects of the World Trade Center attacks to decide that investing is too volatile for you. But often it takes perspective more than anything else to be a successful investor.
There have certainly been many times throughout history when the market has temporarily stumbled. But that doesn't mean you shouldn't invest. In fact, regardless of political events, economic conditions and short-term setbacks, the stock market has prospered over the past seven decades.
Prudent investing depends on a strategy that includes buying quality equity investments and holding them for the long term – in other words, time in the market, not timing the market. Your strategy also should include diversification.1 Diversification involves investing in companies in different industries so that your potential success is not tied to a single industry's performance.
What's even more interesting is that, very often, the reasons people choose not to invest might actually be reasons to consider investing more. Counterintuitive perhaps, but some of the best opportunities have arisen when things appeared to be at their worst. Our table below shows what $10,000 invested in common stocks for the years noted would be worth today2.
| $10,000 Invested on January 1 | ||
| Date | Event | Value After 20082 |
| 1981 | The recession has started, and it looks bad. | $145,234 |
| 1983 | The Dow is over 1,250. It's an all-time high, and I missed it. | $125,676 |
| 1985 | The federal deficit is more than $200 billion. | $96,493 |
| 1987 | Where were you on Black Monday? I was out of the market. | $61,733 |
| 1989 | The 80s are over, but high-yield bond problems aren't. | $50,320 |
| 1991 | Invest in stocks? Maybe you haven't heard, we're in a recession. | $39,455 |
| 1993 | Let the government run health care? American business will never recover. | $28,118 |
| 1995 | The Dow sailed past 4,000 and 5,000. The tide's bound to turn, and I'm afraid I'll get soaked. | $25,221 |
| 1997 | The Dow went from 4,000 to 8,000 in less than three years. I'm getting out while the getting is good. | $14,916 |
| 1999 | Y2K doomsday? I'll wait until I know everything's OK. | $8,699 |
| 2001 | September 11 changed everything. I'll wait out the war on terror. | $7,907 |
| 2003 | We went to war with Iraq. I don't want to be in the market now. | $11,517 |
| 2005 | The U.S. was hit by major hurricanes. Maybe I should wait to see how this affects the economy. | $8,073 |
| 2007 | The subprime loan crisis and problems in the real estate market are making me reconsider investing. | $6,647 |
| 2008 | The major issues in the financial system and the credit freeze are keeping me out of the market. | $6,300 |
Source: Bloomberg
1Diversification does not guarantee a profit or protect against loss.
2Based on the S&P 500. Assumes reinvestment of dividends. Ending values as of Dec. 31, 2008. The S&P 500 is an unmanaged index and cannot be invested in directly.
Past performance is not an indication of future results. Figures do not include fees or commissions, which would have a negative impact on investing results.
