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George Divel Investment Tips #8

Stocks for the Long Term

Recent stock market volatility has forced investors to consider the wisdom of investing in stocks. If you look at short term results, it does seem that investing in stocks can be a terrible strategy.  Remember back to  Oct. 19, 1987? Stocks experienced the worst one-day drop in stock market history  down 22.6 percent. More recently, the shocks have been prolonged and painful. For example,  if you had invested in a NASDAQ index fund at the time of the market’s peak in March 2000 you would have lost three-fourths of your money over the next three years!

Pretty scary.

But on the other hand, in the long term, there has been no better investment than stocks.   From 1926 to 2006, the S&P 500 returned an average annual gain of 10.4%. The next best performing asset class is bonds. Long term U.S. Treasury notes returned, on average, 5.9 percent over the same period.

It is difficult to keep these results in mind when the stock market is plunging hundreds of points, but most of the time, this is a good idea. The impulse at those times is to sell all stocks and run for the hills.  But it is important not to let your emotions manage your investments.

If you pick good companies, or good stock mutual funds or index funds, over time you will do better than most other types of investments.  Of course, you also have to consider your investment time horizon but if you are a long term investor, stocks need to be part of your strategy.

Of course, you should consult with your investment advisor to make sure that your portfolio is diversified and suitable to your particular financial needs.

April 3, 2008 Posted by | Uncategorized | Leave a comment